Bisalloy Steel Group Limited
Annual Report 2015

Plain-text annual report

d e t i i m L p u o r G l e e t S y o l l a s B i T R O P E R L A I C N A N I F 5 1 0 2 Contents Directors’ report Corporate governance statement Auditor’s independence declaration Statement of profit or loss Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report ASX additional information Corporate directory 2 15 21 22 23 24 25 26 64 65 67 70 1 Charge end Hard stamp Shot blasting Laser Guided Vehicle Transfer Austenitising furnace Roller quench Tempering furnace Shot blasting Thickness check Auto grinding Hardness test Hardness reading Leveller Test cut Bar coding Stencil Packing Finishing end DI R E C T O R S R E P O R T Your directors submit their report for the year ended 30 June 2015. Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Mr Phillip Cave, AM B.Bus, FCPA Chairman Skills & Experience: Mr Cave is an experienced director, Chairman and Chief Executive Officer with a career in major corporate turnaround projects, structured finance and corporate advisory service. Over a 35 year career, Mr Cave’s experience has combined a mixture of operational management expertise across a wide variety of industries with an in depth knowledge of finance and banking. Term of office: A founding director of the Company and Chairman since appointed in November 2001. Last re-elected in November 2014. Board Committees: • Chairman of the Nominations & Remuneration Committee • Audit & Risk Committee Public company directorships during past three years: • Chairman Dick Smith Holdings Ltd from December 2013 to February 2015. Other directorships: • Chairman Anchorage Capital Partners • Chairman Wesley Institute • Chairman Ability First Australia • Acrow Formwork & Scaffolding Pty Ltd • First Engineering Ltd Mr Robert Terpening Managing Director and CEO Skills & Experience: Mr Terpening was appointed Managing Director / CEO on 6th November 2008. Mr Terpening is an experienced manager of industrial businesses having had 18 years in Sales & Marketing and Operations roles followed by 19 years in General Management of manufacturing businesses. Mr Terpening’s management experience has included operations across Australia, Indonesia, Thailand, New Zealand and the PRC. Mr Terpening is a Director of Bisalloy Steel Group’s joint venture businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Terpening is also the Vice Chairman of the Group’s Co-operative Joint Venture, Bisalloy Jigang (Shandong) Steel Plate Co., Limited. Term of office: Appointed in November 2008. As the managing director he is not subject to re-election by rotation. Board Committees: Nil Other directorships: Nil 2 Bisalloy Steel Group Limited2015 annual reportMr Kym Godson, Dip Tech (Bus Admin), FAICD, FAIM Non-executive Director Skills & Experience: Mr Godson is an experienced public company director and has extensive experience in the management of industrial businesses, particularly within the steel industry. He is a former Managing Director and CEO of the Company having retired from the position in November 2008. Term of office: A founding director of the Company appointed in November 2001. Last re-elected in November 2014. Board Committees: • Audit & Risk Committee • Nominations & Remuneration Committee Other directorships: • The House of M&K Pty. Ltd Mr Richard Grellman, AM FCA Non-executive Director Skills & Experience: Mr Grellman brings significant accounting and finance skills to the Company, having had over 32 years experience in the accounting profession. He was a partner at KPMG from 1982 to 2000 and a member of KPMG’s National Board from 1995 to 1997 and National Executive from 1997 to 2000. Term of office: • Appointed in February 2003 and is retiring by rotation pursuant to the requirements of the Company’s constitution in order to seek re-election at the 2015 AGM. Board Committees: • Chairman of the Audit & Risk Committee • Nominations & Remuneration Committee Public company directorships during past three years: • Chairman, Crowe Horwath Australasia Ltd. • Chairman, Genworth Mortgage Insurance Ltd • Chairman, IPH Ltd Other directorships: • Chairman, Bible Society Australia • Chairman, AMP Foundation Mr Dario Pong, AB in Economics Non-executive Director Skills & Experience: Mr Pong is currently based in Hong Kong and has lived for extended periods in Shanghai and Beijing, with wide ranging experience in the steel industry in the People’s Republic of China. Mr Pong provides valuable experience and insight as Bisalloy develops its Asian growth strategy, including its Chinese Joint Venture. Term of office: Appointed on 30 September 2013 and is retiring by rotation pursuant to the requirements of the Company’s constitution in order to seek re-election at the 2015 AGM. Board Committees: • Audit & Risk Committee • Nominations & Remuneration Committee Other directorships: • Ferro Resources Ltd • Shiu Wing Steel Ltd 3 3 Company Secretary Mr Malcolm Mitchell MA, CA Skills & Experience Mr Mitchell is a Chartered Accountant and has over 30 years professional experience working in senior financial positions with both listed and private companies. Mr Mitchell was a Director of the Company until early 2007. Interests in shares of the company and related bodies corporate As at the date of this report, the interests of the directors in the shares of Bisalloy Steel Group Limited were: P J Cave R Terpening K Godson R Grellman D Pong DI V IDE NDS Final dividend recommended on ordinary shares (fully franked) Dividends paid in the year Cents $’000 4.00 1,759 0.00 Nil PRINCIPA L AC T I V IT IE S The principal activity of the Group during the financial year was the processing and sale of quenched and tempered, high-tensile, and abrasion resistant steel plates (“Q&T plate”). OPE R ATING A ND FIN A NCI A L RE V IE W OPE R ATION S G R O U P Bisalloy Steel Group comprises Bisalloy Steels Pty Ltd in Australia, the majority owned distribution businesses in Indonesia (PT Bima Bisalloy) and Thailand (Bisalloy Thailand) and the investment in the Chinese CJV – Bisalloy Jigang (Shandong) Steel Plate Co, Ltd. The Group has seen a decline in demand for Q&T plate across the markets in which it operates, driven by the reduced expenditure on new projects and a slower than expected increase in repairs and maintenance by resource companies. Despite this environment the Group’s Australian operation has increased its domestic market share contributing to a 10.6% increase in Group revenue in FY2015. The Group recorded a net profit after tax for the year ended 30 June 2015 of $2.8m, which was up $4.2m or 302% from the preceding year’s result. The Group’s net debt decreased to $3.6m at 30 June 2015 (30 June 2014: $10.1m). The Group maintains its objective of reducing debt to the most appropriate level with both capital expenditure and working capital continuing to be closely managed. Number of Ordinary Shares 7,573,562 525,969 1,344,766 41,693 0 Safety is a key commitment of the Group with a continued focus on zero harm to all employees, contractors and visitors. All employees across the Group’s operations are empowered under the STAR program to Stop, Think, Act and Respond to any issue in regard to ensuring safe working conditions. For the second consecutive year, the Group recorded no Lost Time Injuries across its operations and as at 30 June 2015 had achieved 768 days Lost Time Injury free. B I S A L L OY S T E E L S A U S T R A L I A Bisalloy Steels is Australia’s only processor of quenched and tempered high-tensile, abrasion resistant and armour grade alloyed steel plates. Bisalloy Steels distributes wear-grade and high tensile plate through distributors and directly to original equipment manufacturers in both Australia and overseas. While the challenges confronting businesses providing services and materials to the resources sector are well documented, Bisalloy’s objective for FY2015 was to recover domestic market share that had been lost to overseas steel producers targeting the Australian Q&T market with their surplus production at dumped prices. This objective was partially achieved through the impact of the determination of the Australian Anti-Dumping Commission’s investigation into imports of Q&T plate from Sweden, Finland and Japan. The Commission found significant dumping margins in the Australian Q&T plate market and imposed anti-dumping duties on Q&T plate exported to Australia from the nominated countries. While these duties were between 9.6% and 26.1%, the true dumping margins verified by the Anti-Dumping Commission were between 21.7% and 34.0%. This result saw imports from all the nominated countries adapt to the new trading environment. Japanese imports reduced significantly and one of the major importers of Japanese Q&T plate ceased trading in November 2014. Imports from Sweden, while reduced in volume, were 4 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedpartially replaced by that manufacturer’s production facilities in the USA. The resulting increase in Bisalloy’s domestic sales tonnes flowed through to higher production levels which provided manufacturing efficiencies that are possible due to the Group’s highly automated and efficient processing capabilities at Unanderra. The lower cost base established for the Australian business, improved manufacturing efficiencies and competitively priced steel plate inputs to the production process allowed consolidation of margins that had been eroded in the prior year. Despite a reduction in capital investment by the major Australian miners, signs of increased repairs and maintenance spending due to high production outputs have been seen in some sectors. B I S A L L OY A S I A The Group’s distribution subsidiaries in Indonesia and Thailand continued to operate profitably over FY2015 despite difficult business conditions in both markets. Improvement plans implemented in FY2015 aim to deliver increased profits from these businesses in FY2016. PT Bima Bisalloy in Indonesia operates across the resources, agriculture, cement and power industries and is progressively diversifying its customer base away from businesses which have traditionally focused on supplying the resource sector. Bisalloy Thailand continues to have a greater reliance on original equipment manufacturers for export, but it continues to develop its customer base across the agriculture, cement industries and armour applications as well as exports into neighbouring countries. B I S A L L OY J I G A N G C O O P E R AT I V E J O I N T V E N T U R E (C J V ) The Group’s Cooperative Joint Venture (CJV) for the production and sale of quench & tempered steel into China and other North Asian markets continues its steady profit growth and the Group’s original investment has now been fully recouped. Dividends received from the CJV during the year amounted to $0.3m. The CJV generated a total operating profit before tax of $1.6m, which after local taxes resulted in a 50% contribution to the Group of $0.5m for FY2015. While Chinese equipment manufacturing is suffering from soft global demand, the CJV’s sales tonnes continue to improve quarter on quarter. Additional sales resources are being added in line with the CJV’s strategic growth plan and an expansion of the product portfolio will also benefit sales in the year ahead. This growth opportunity remains attractive as it is low risk with scope for significant upside. FIN A NCI A L RE V IE W O P E R AT I N G R E S U LT S The Group’s net profit for the year after income tax was $2,819,000 (2014: Loss of $1,394,000). The result reflects the improved performance in the core Australian business over the course of the year following the restructure investment in 2014 and increased market share. Operating results are summarised as follows: Operating Segments Australia Overseas 2015 Revenue $000s Profit after tax $000s 54,333 1,936 13,600 1,189 67,933 3,125 Consolidated entity adjustments (6,954) (306) Consolidated entity revenue and profit after tax for the year 60,979 2,819 S H A R E H O L D E R R E T U R N S The improved return to shareholders reflects the results of actions and initiatives undertaken during FY2015. Basic earnings / (loss) per share (cents) Net profit / (loss) attributable to members ($’000) Return on equity (reported PAT/equity) (%) Gearing (net debt / net debt + equity) (%) 2015 2014 2013 2012 5.7c (3.8c) 8.0c 14.5c 2,490 (1,650) 3,483 6,260 11.9% (5.9%) 16.0% 36.9% 12% 32% 29% 34% Dividends paid (cents) 0.0c 0.0c 4.0c 0.0c Dividend franking – – 100% – L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S The consolidated statement of cash flows illustrates an increase in cash and cash equivalents before exchange rate differences for the year ended 30 June 2015 of $3,513,000 (2014: increase of $207,000). Operating activities generated $6,208,000 of net cash inflows (2014: $1,650,000) reflecting the improved profitability of the Group compared to prior period. Investing activities required $815,000 (2014: $130,000) of net cash outflows for investment in operating plant and equipment. A dividend of $316,000 (2014: $755,000) was received from the Bisalloy Jigang joint venture. 5 The net cash inflows from operating and investing activities were used to reduce net debt. Net cash outflows from financing activities were $2,196,000 (2014: outflow of $2,077,000). F U N D I N G sub-committee further examines the issue and reports back to the board. The board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the board. These include the following: Bisalloy Steel Group Limited and Bisalloy Steels Pty Limited entered into a renewed facility agreement with GE Commercial Australasia Pty Limited on 30 June 2015. The facility provides Bisalloy Steel Group Limited with a: • Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk. • $12m revolving loan facility; and • $7.67m term loan facility. The facility has a maturity date of 30 June 2018. BU SINE S S S T R AT EGY A ND O U T LOOK While the Group operates within the steel sector with its marketing mix historically leveraged to the resource sector. Efforts over recent years to deliver new products and enter new markets have diversified the marketing mix at a time when the resource sector is in a cyclical downturn. This has presented more growth opportunities for the Group in recent times and will be a focus of the Group in the year ahead. The Directors believe this strategy will continue to generate positive returns for shareholders. Bisalloy Steels Australia has performed strongly in its domestic market and while the Australian domestic Q&T market has seen a reduction of circa 20% over the past twelve months, Bisalloy Steels Australia’s market share is being restored to levels achieved prior to the dumping experienced in late 2013 and 2014. Further market share gains are being targeted in FY2016. In addition to this domestic market share improvement, export and armour plate sales should further improve assisted by the continuing fall in the A$. The Group’s distribution subsidiaries in Indonesia and Thailand continued to operate profitably over FY2015 despite difficult business conditions in both markets. Improvement plans implemented in FY2015 aim to deliver increased profits from these businesses in FY2016. Bisalloy’s Co-operative Joint Venture in the People’s Republic of China is forecasting steadily increasing financial contributions to Group results through FY2016. BU SINE S S RISK M A N AGEME N T The Group takes a proactive approach to risk management. The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the board. The board has established an Audit and Risk Committee comprising non-executive directors, whose meetings are also attended by the executive directors. In addition sub-committees are convened as appropriate in response to issues and risks identified by the board, and the • Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. • Establishment of committees to report on specific business risks, including for example, such matters as environmental issues and concerns and occupational health and safety. • Board review of financial risks such as the Group’s liquidity, currency, interest rate and credit policies and exposures and monitors management’s actions to ensure they are in line with Group policy. The major high level business risk with the greatest potential to materially impact on the financial outlook for the Group is the prolonged deferral by the resource companies in undertaking the level of repairs and maintenance reflective of the reported levels of output. The Board is confident that Bisalloy has the products, strategies and management team to meet the challenges presented by any continued downturn in demand and is well positioned to take advantage of the eventual market recovery. SIGNIFICA N T CH A NGE S IN T HE S TAT E OF A F FA IRS Total equity increased from $21,681,000 to $25,754,000, an increase of $4,073,000 driven by the net profit for the year and by foreign currency translation gains of $1,598,000 relating to the overseas subsidiaries as a result of the revaluation of the Australian dollar at the end of the year. SIGNIFICA N T E V E N T S A F T E R T HE BA L A NCE DAT E Mr Robert Terpening the Group’s Managing Director advised the Board on 25 August 2015 of his intention to retire effective 5 January 2016. INDEMNIFICATION A ND IN S U R A NCE OF DIREC TORS A ND OF FICE RS The Group must, subject to certain exceptions set out in the constitution, indemnify each of its officers on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses incurred by the officer, as an officer of the Group (including all liabilities incurred where the officer acts as 6 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedan officer of any other body corporate at the request of the Group) including any liability for negligence and for reasonable legal costs. During the year or since the end of the year, the Group has paid premiums in respect of a directors and officers liability insurance policy. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the policy have not been disclosed, as such disclosure is prohibited under the terms of the contract. E N V IRONME N TA L REG U L ATION The Group’s activities are governed by a range of environmental legislation and regulations. The Group utilises both internal and external environmental assessments to verify its compliance with applicable environmental legislation and regulations. The Group is registered under National Greenhouse and Energy Reporting Act 2007 under which it is required to report energy consumption and greenhouse gas emissions for its Australian facilities. The Group has implemented systems and processes for the collection and calculation of the data to meet its reporting requirements. The Board believes that the consolidated entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the consolidated entity. RO U NDING The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies. AUDITOR INDE PE NDE NCE The directors received the declaration on page 21 from the auditor of Bisalloy Steel Group Limited which forms part of this report. INDEMNIFICAT ION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. NON -AUDIT SE RV ICE S No non audit services were provided by the Company’s auditor, Ernst & Young in relation to the year ended 30 June 2015. DIREC TORS’ ME E T ING S The number of directors meetings and number of meetings attended by each of the directors of the Company during the financial year are: Committee Meetings Directors’ Meetings Audit & Risk Nominations & Remuneration Number of Meetings Held Number of Meetings Attended P J Cave R Terpening K Godson R Grellman D Pong 6 5 6 6 6 5 2 2 – 2 2 1 1 1 – 1 1 1 REM U NE R ATION RE P OR T (AUDIT ED) This remuneration report for the year ended 30 June 2015 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Group receiving the highest remuneration. R E M U N E R AT I O N P O L I C Y The remuneration policy is set in recognition that the performance of the Group depends upon the quality of its directors and executives. In order to perform, the Group must be successful in attracting, motivating and retaining directors and executives of the highest quality. To assist in achieving this objective, the remuneration policy embodies the following principles: 1. Provide competitive remuneration to attract high calibre directors and executives. 2. Align executive rewards with creation of shareholder value. 3. Ensure a significant component of executive remuneration is ‘at risk’ dependant upon meeting pre- determined performance hurdles. 4. Establish appropriately demanding performance hurdles in relation to variable executive remuneration. 5. Provide the opportunity for non-executive directors to sacrifice a portion of their fees to acquire shares in the Company at market price. 7 N O M I N AT I O N S A N D R E M U N E R AT I O N C O M M I T T E E The Nominations and Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors, the Managing Director and other senior executives, and the review and recommendation of general remuneration principles. R E M U N E R AT I O N S T R U C T U R E The structure of non-executive director and executive remuneration is separate and distinct, in accordance with good corporate governance principles. N O N - E X E C U T I V E D I R E C T O R R E M U N E R AT I O N Objective The Board sets aggregate remuneration at a level which is intended to provide the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Company’s constitution and the ASX listing rules specify that the non-executive director fee pool shall be determined from time to time by a general meeting. The non-executive director fee pool is currently set at $500,000. The board will not seek any increase for the fee pool at the 2015 AGM. The remuneration of non-executive directors must not include a commission on, or a percentage of, profits or operating revenue but directors are entitled to be reimbursed for travelling and other expenses incurred in attending to the Company’s affairs. Each director receives a fee for being a director of the Company and an additional fee for each Board Committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub committees. Non-executive directors are encouraged by the Board to hold shares in the Company and are able to participate in the Non-executive Director (“NED”) Share Plan. Under the NED Share Plan a non-executive director can choose to sacrifice up to 100% of their annual director’s fee and instead be allocated shares up to the equivalent value. The value of the allocated shares is determined by reference to the market value on the day they are acquired on market. The remuneration of non-executive directors for the period ended 30 June 2015 is detailed in the table on page 11 of this report. E X E C U T I V E D I R E C T O R A N D E X E C U T I V E M A N A G E R R E M U N E R AT I O N Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their duties and responsibilities within the Group and to: • • reward executives for Group, business unit and individual performance measured against targets set by reference to appropriate benchmarks; link reward with the achievement of the Group’s strategic goals; • align the interests of executives with those of shareholders; and • ensure total remuneration is competitive. Structure Executive director and executive manager remuneration consists of the following key components: 1. Fixed Remuneration 2. Variable Remuneration made up of: – Short Term Incentive (STI); and – Long Term Incentive (LTI) The proportion of total remuneration that is fixed or variable (either short term or long term incentives) is determined for each individual executive by the Nominations & Remuneration Committee. The remuneration of members of management who have the authority and responsibility for planning, directing and controlling the activities of the Group for the period ended 30 June 2015 is detailed in the table on page 11 of this report. F I X E D R E M U N E R AT I O N Objective The level of fixed remuneration is set so as to provide a base level of remuneration which is both commensurate with the individual’s duties and responsibilities within the Group and competitive in the market. Fixed remuneration is reviewed annually by the Nominations and Remuneration Committee utilising a process of reviewing group-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and external advice on policies and practice. 8 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedStructure At the 2012 Annual General Meeting, a LTI plan was renewed for LTI grants to executives in the form of share rights. These rights are granted in two equal parts. The first part is based on retention and requires the holder remain an employee for three years from grant date. The second part is based on delivering superior long-term performance as measured by Return on Equity (“ROE”), with each grant of rights divided into three equal tranches. For each tranche, actual ROE is measured against a budget ROE and a stretch ROE as determined annually by the board in respect of the forthcoming year. The proportion of the rights which vest depend on where within this range the Group performs, with 100% vesting on achieving the stretch ROE and no rights vesting if actual ROE is less than 90% of the budgeted ROE. For the 2015 year, the stretch ROE was set at 115% of the budget ROE. Any rights to which the employee may become entitled on achieving the performance criteria, are still subject to the three year retention criteria before they can vest. Any share rights which do not vest, as a result of the relevant performance condition not being satisfied, lapse. If the holder leaves the business, the unvested rights lapse on the leaving date unless the board determines otherwise. In the event of a change in control of the Group, the vesting date will generally be brought forward to the date of change of control and share rights will vest subject to performance over this shortened period, subject to ultimate board discretion. Once vested a holder may exercise his share rights and be allocated a fully paid ordinary share of Bisalloy Steel Group Ltd at no cost to the employee. No share rights were granted under this scheme during the year. Group performance The board have determined that the Group did not meet its budgeted ROE for the year and so the performance components of the 2015 share rights have not vested. For further detail of historical performance, refer to the shareholder returns section earlier in this Directors’ report. Structure Executive directors and senior managers are provided with the opportunity to receive their fixed remuneration in a variety of forms, including cash, additional superannuation contributions and fringe benefits such as motor vehicles. The aim is to provide payments in a form that is both optimal for the recipient and cost efficient for the Group. The fixed remuneration component of executive directors and members of management who have the authority and responsibility for planning, directing and controlling the activities of the Group for the period ended 30 June 2015 is detailed in the table on page 11 of this report. VA R I A B L E R E M U N E R AT I O N – S H O R T T E R M I N C E N T I V E S ( S T I ) Objective The STI program has been designed to align the remuneration received by executives and senior managers with the achievement of the Group’s operational and financial targets. The total potential STI available for payment is determined so as to provide sufficient incentive to executives and senior managers to achieve the targets and so that the cost to the Group is reasonable in the circumstances. Structure The actual STI payments granted to each executive and senior manager depends upon the extent to which specific operational and financial targets set at the beginning of the financial year are met. The targets consist of a number of both financial and non-financial Key Performance Indicators (KPIs). After the end of each financial year, consideration is given to performance against each of these KPIs to determine the extent of any payment to an individual executive and senior manager. The aggregate of STI payments and STI payments to individuals is subject to the approval of the Nominations & Remuneration Committee. Payments made are normally paid as cash but the recipient is also able to elect to receive payment in alternative forms. VA R I A B L E R E M U N E R AT I O N – L O N G T E R M I N C E N T I V E S ( LT I ) Objective The LTI program has been designed to align the remuneration received by executive directors and senior managers with the creation of shareholder wealth. Consequently LTI grants are only made to executives who are in a position to influence shareholder wealth and thus have the opportunity to influence the company’s performance against the relevant long term performance hurdles. 9 Details of key management personnel of the Company and Group (i) Directors P J Cave Non-executive Chairman E X E C U T I V E C O N T R A C T S Remuneration arrangements for the key management personnel are formalised in employment contracts. Details of these contracts are provided below. R Grellman Non-executive Director R. Terpening – Managing Director K Godson Non- executive Director D Pong Non-executive Director R Terpening Managing Director (ii) Executives D MacLaughlin Chief Financial Officer and Company Secretary (resigned 22 August 2014) A Elliott D Collins1 Chief Financial Officer (appointed 22 August 2014, resigned 8 May 2015) Chief Financial Officer (appointed 11 May 2015) M Sampson Sales & Marketing Manager M Bradmore Operations Manager T Matinca Business Development & Strategy Manager 1. Mr Collins is contracted from Talent2 Pty Limited. The terms of this contract are set out in a consultancy agreement between the Company and Talent2 Pty Limited and may be terminated, by either party, at any time. • Regular employment contract without fixed term. • Participation in STI and LTI schemes. • 6 months notice required for termination of employment by employee • 12 months notice required for termination by company. M. Sampson – Sales & Marketing manager • Regular employment contract without fixed term. • Participation in STI and LTI schemes. • 1 month notice required for termination of employment M. Bradmore – Operations manager • Regular employment contract without fixed term. • Participation in STI and LTI schemes. • 3 months notice required for termination of employment. T Matinca – Business Development & Strategy Manager • Regular employment contract without fixed term. • Participation in STI and LTI schemes. • 3 months notice required for termination of employment. 10 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedR E M U N E R AT I O N O F K E Y M A N A G E M E N T P E R S O N N E L O F T H E C O M PA N Y A N D G R O U P Short-term Long-term Post employment Salary and fees $ Cash bonus $ Long service leave $ Super- annuation $ Retirement benefits $ Termination benefits Share-based payments Share Rights $ Total $ Performance Related % Year ended 30 June 2015 Non-Executive Directors R Grellman K Godson D Pong Sub-total Non-Executive Directors Executive Directors 80,000 80,000 100,000 – – – – – – 7,600 7,600 – 260,000 – 15,200 R Terpening 490,000 – 8,456 35,000 Other key management personnel D MacLaughlin1 A Elliott2 D Collins3 T Matinca M Bradmore M Sampson 65,717 145,954 40,320 240,092 185,577 136,742 Sub-total executive KMP Totals 1,304,401 1,564,401 – – – – – – – – – – – 3,744 16,097 – 9,554 34,401 4,017 15,583 4,282 34,996 26,309 139,821 26,309 155,021 $ – – – – – – – – – – – – – – – – – – – 87,600 87,600 100,000 – – 275,200 – – – – – 33,025 566,481 6% – (41,096) 28,365 55,000 – – – – – – – – – 217,051 40,320 284,047 205,177 176,020 55,000 (8,071) 1,517,460 55,000 (8,071) 1,792,660 – – – – – – – _ 1. Mr MacLaughlin resigned effective 22 August 2014. 2. Mr Elliott was appointed 22 August 2014 and resigned 8 May 2015. 3. Mr Collins was appointed 11 May 2015 and is contracted from Talent2 Pty Limited. Remuneration disclosed reflects payments to Talent2 Pty Limited. The KMP did not receive any STI (2014: nil) during the period. 11 Short-term Long-term Post employment Salary and fees $ Cash bonus $ Long service leave $ Super- annuation $ Retirement benefits $ Year ended 30 June 2014 Non-Executive Directors Termination benefits Share-based payments Share Rights $ Total $ Performance Related % – – – – – – – – – – – 7,400 1,850 7,400 – P J Cave 120,000 80,000 20,000 80,000 75,000 R Grellman G Pettigrew1 K Godson D Pong2 Sub-total Non-Executive Directors Executive Directors 375,000 – – 16,650 R Terpening 493,437 – 21,359 25,000 Other key management personnel D MacLaughlin M Sampson M Bradmore T Matinca 251,055 161,890 183,258 246,210 Sub-total executive KMP Totals 1,335,850 1,710,850 1. Mr Pettigrew resigned on 30 September 2013. 2. Mr Pong was appointed on 30 September 2013. S H A R E R I G H T S – – – – – – 6,146 24,704 5,899 15,645 4,159 14,983 2,039 24,918 39,602 105,250 39,602 121,900 – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – – – 120,000 87,400 21,850 87,400 75,000 – 391,650 – – – – – – 99,076 638,872 16% 41,094 322,999 13% 4,788 4,788 4,788 188,222 207,188 277,955 154,534 1,635,236 154,534 2,026,886 3% 2% 2% 9% 8% Share rights holders do not have any entitlement, by virtue of the rights, to participate in any share issue of the Company or any related body corporate or in the interest issue of any other registered scheme. 12 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedP E R F O R M A N C E R I G H T S H O L D I N G S O F K E Y M A N A G E M E N T P E R S O N N E L O F T H E C O M PA N Y A N D G R O U P Balance at 1 July 2014 Granted during the year Rights exercised during the year Forfeited or Lapsed Balance at 30 June 2015 Vested and exercisable Unvested Executives R Terpening D Collins D MacLaughlin M Sampson M Bradmore T Matinca Grant date Vesting date Fair value at grant date Balance at 1 July 2014 New grants in the year Exercised in the year1 Lapsed during the year Balance at 30 June 2015 Vested at 30 June 2015 333,333 – 166,667 66,667 66,667 66,667 700,001 – – – – – – – – – – (66,667) (66,667) (66,667) (83,333) 250,000 – (166,667) – – – – – – – – (200,001) (250,000) 250,000 – – – – – – – 250,000 – – – – – 250,000 R Terpening D MacLaughlin M Sampson M Bradmore T Matinca Total 4-Jan-13 1-Jul-13 1-Jul-11 1-Jul-11 1-Jul-11 4-Jan-16 30-Jun-16 30-Jun-14 30-Jun-14 30-Jun-14 $1.19 $0.74 $0.58 $0.58 $0.58 333,333 166,667 66,667 66,667 66,667 700,001 – – – – (83,333) (166,667) 250,000 – – – – – – – (66,667) (66,667) (66,667) (200,001) – – – – – – – – – (250,000) 250,000 – 1. During the year 200,001 ordinary shares (2014: 133,334) were acquired on-market and allocated to key management personnel on the exercise of vested performance rights. The budget Return on Equity as set by the Board for the 2015 financial year was not achieved and so none of the performance portion of the LTI vested for 2015. Final vesting of the share rights are subject to each Executive remaining employed by the Group until the vesting date. S H A R E H O L D I N G S O F K E Y M A N A G E M E N T P E R S O N N E L Shareholdings include shares held personally and through related parties. Executives D Collins D MacLaughlin M Sampson M Bradmore T Matinca Balance at 1 July 2014 Performance Rights exercised Other Balance at 30 June 2015 – 133,334 – – 180 66,667 572 66,667 6,000 66,667 140,086 200,001 – – 8 – – 8 – 133,334 66,855 67,239 72,667 340,095 13 A U D I T The information contained in the Remuneration Report has been audited. Signed in accordance with a resolution of the directors. The directors have received the Auditors independence declaration which is included on page 21 of the annual report. Robert Terpening Managing Director 25 August 2015 14 Bisalloy Steel Group Limited2015 annual reportDIRECTORS REPORTcontinuedC O R P O R AT E G OV E R N A N C E S TAT E M E N T 2 0 15 The board of directors of Bisalloy Steel Group Limited is responsible for establishing the corporate governance framework of the Group having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. The board guides and monitors the business and affairs of Bisalloy on behalf of the shareholders by whom they are elected and to whom they are accountable. The tables below summarise the Group’s compliance with the CGC’s recommendations. The Company’s website from which the documents referred to can be accessed is at www.bisalloy.com.au Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1.1 Companies should establish the Yes functions reserved to the board and those delegated to senior executives and disclose those functions. 1.2 Companies should disclose the Yes process for evaluating the performance of senior executives. 1.3 Additional information. The board has a formal Corporate Governance Code which sets out the respective roles and responsibilities of the board and management. In addition, the board committees have specific Charters which provide further details on the matters reserved for the board or its committees. A formal structured review is undertaken each year for each employee. Senior executives are reviewed by the CEO and input provided by the Chair. This process generally takes place in May each year as was the case in 2015. The Corporate Governance Code and other relevant charters are available on the Company’s website. PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE 2.1 A majority of the board should be Yes independent directors. The board currently has five directors, three of whom are considered independent. The board has adopted the CGC’s guidelines as the basis for determining whether a director can be considered independent and has set relevant thresholds for materiality. Whether or not a director meets the CGC guidelines for independence, each director is expected to exercise unfettered and independent judgement. The following directors are considered independent: • Mr Grellman • Mr Godson • Mr Pong 2.2 The chair should be an independent director. 2.3 The roles of chair and chief executive officer should not be exercised by the same individual. 2.4 The board should establish a nomination committee. No Yes Yes The board believes that while the Chairman is not independent, the current composition of the board with its combined skills and capability, best serves the interests of the shareholders. The roles of chair and chief executive officer are not exercised by the same individual. The Company has a combined Remuneration & Nominations Committee. The charter can be reviewed on the Company’s website. 15 Reference/Explanation The Chair monitors the performance of the board and conducts informal meetings with the other directors during the year. The board undertakes a formal review every 12 to 18 months. The review includes: • examination of the effectiveness and composition of the board, including the required mix of skills, experience and other qualities which the non-executive directors should bring to the board for it to function competently and efficiently; • review of Bisalloy’s strategic direction and objectives; • assessment of the Managing Director’s performance by the non-executive directors; • assessment of whether corporate governance practices are appropriate and reflect “good practice”; and • assessment of whether the expectations of differing stakeholders have been met. As part of this process the Chairman also: • meets with the senior executives to discuss with them their views of the board’s performance and level of involvement; • discusses each individual director’s contributions face-to-face as appropriate; and • meets with the other non-executive directors without any management present (this is in addition to the consideration of the Managing Director’s performance and remuneration which is conducted in the absence of the Managing Director). Details of the composition, skills, experience, term in office, attendance at meetings of the members of the board at the date of this statement are set out in the Directors’ Report. Recommendation 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. Comply Yes/No Yes 2.6 Additional information 16 Bisalloy Steel Group Limited2015 annual reportCORPORATE GOVERNANCE STATEMENT 2015continuedRecommendation Comply Yes/No Reference/Explanation PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 Companies should establish a code Yes of conduct and disclose the code or a summary of the code as to: • • • the practices necessary to maintain confidence in the company’s integrity the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. No 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. 3.3 Companies should disclose in No each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress toward achieving them. 3.4 Companies should disclose in each Yes annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 3.5 Additional information The Group has an established Code of Conduct which applies to all employees, officers and directors of the Group. An annual adherence declaration is required of each employee as part of their performance appraisal discussed at Principle 1.2. The Code of Conduct has four key principles as follows: 1. We respect each other and treat all people fairly 2. We respect the law and act accordingly 3. We act honestly and fairly in all our business activities and relationships 4. We use Bisalloy’s property responsibly and in the best interests of Bisalloy: The Group also has a number of other policies and standards which underpin the Code of Conduct including policies on Appropriate Workplace Behaviour, Equal Employment Opportunity, Safety, Fitness for Work, Workplace Harassment and Discrimination. Together these form a framework for ethical and responsible decision making and proscribe how the individuals of the Group behave internally and externally. In addition, the board has an established Corporate Governance Code as discussed under Recommendation 1. The Company has an Equal Employment Opportunity Policy under which it commits to ensuring applicants for employment are drawn from a full cross section of the community and that the merit principle forms the basis of recruitment and promotion. In light of the total number of employees and low turnover levels in all management levels of the Group, the board believes that little effective benefit would be achieved from the setting of measurable objectives for achieving gender diversity and that the interests of the Group are best served in this case by rigorous application of the merit principle in all recruitment and promotion decisions. Measurable objectives for achieving gender diversity are not set by the board as discussed under Principle 3.2. 10% of employees across the organisation are women and there are no women in senior executive positions or on the board. The Equal Employment Opportunity Policy is available on the Company website. 17 Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 4.1 The board should establish an audit committee. 4.2 The audit committee should be structured so that it: Yes Yes The Company has an Audit & Risk Committee. At the date of this report and throughout the reporting period the Company’s Audit and Risk Committee was: • consists only of non-executive • comprised of non-executive directors being directors • consists of a majority of independent directors • is chaired by an independent chair, who is not chair of the board • has at least three members 4.3 The audit committee should have a Yes formal charter. 4.4 Additional information. Mr Grellman, Mr Cave, Mr Godson and Mr Pong. • chaired by Mr Grellman • governed by a Charter approved by the Board • sufficiently autonomous to be able to discharge its duties and responsibilities including the authority to select, retain and terminate external advisers as the Committee considers necessary without seeking approval of the board or management. The Audit & Risk Committee is governed by a formal Charter and is responsible for ensuring that an effective internal control framework exists within the Group. This includes internal controls for effective reporting of financial information, the appropriate application and amendment of accounting policies and the identification and management of risk. Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report. The Audit & Risk Committee Charter is available on the Company’s website. PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE 5.1 Establish written policies designed to Yes ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 5.2 Additional information 18 The Group has a formal Continuous Disclosure Policy. The policy aims to ensure that once management becomes aware of any information concerning the Group that a reasonable person would expect to have a material effect on the price or value of the Company’s shares (subject to the relevant exceptions), that such information is released to the market. The board is committed to ensuring all investors have equal and timely access to material information concerning the Group and that the Group’s announcements are factual and presented in a clear and balanced way. The Company Secretary is the person responsible for continuous disclosure and communicating with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements under the ASX Listing Rules and overseeing and co-ordinating information disclosed to the ASX, market participants and the public. The Company’s Continuous Disclosure Policy is available on the Company’s website. Bisalloy Steel Group Limited2015 annual reportCORPORATE GOVERNANCE STATEMENT 2015continuedRecommendation Comply Yes/No Reference/Explanation PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS 6.1 Design a communications policy for Yes promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. PRINCIPLE 7 – RECOGNISE AND MANAGE RISK Yes Yes 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. In order to facilitate shareholders accessing information about the Group, all Group announcements, briefings, presentations and reports are posted on the Company’s website after release. The website includes additional news items about the activities of the Group which are not market sensitive. Shareholders are entitled to receive a copy of the Annual Report and can elect the method by which it is delivered. The Group encourages shareholders to elect to receive the Annual Report and other correspondence from the Company electronically and requires shareholders to ‘opt in’ if they wish to receive a hard copy of the report. Shareholders are encouraged to attend for the Annual General Meeting as full use is made of the occasion to inform shareholders of current developments through presentations and the opportunity to ask questions of management and the Group’s external auditors. The board has allocated responsibility to the Audit & Risk Committee to ensure there are adequate polices, procedures and control systems in relation to risk management and compliance. The Committee reviews and approves polices pertaining to material business risks to ensure they are current and adequately address the necessary aspects of risk management. The Company has developed and implemented a risk management process to ensure that there are up-to-date risk management policies and procedures which reflect the board’s appetite for risk and which are consistently applied across the Group. Conformance with policies and procedures is the responsibility of management and compliance reviewed on a periodic basis. The Company has an Audit & Risk Committee which meets regularly during the year. At the meetings the Committee receives explanations from management on any breakdowns in internal controls identified and the actions proposed to resolve them. Items remain open and are reviewed at following committee meetings until resolved to the Committee’s satisfaction. 7.3 The board should disclose whether it has received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Yes In accordance with section 295A of the Corporations Act, the CEO and CFO have provided a written statement to the board that: • • their view provided on the Group’s financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the board. the Company’s risk management and internal compliance and control system is operating effectively in all material respects. 19 Recommendation 7.4 Additional information. Comply Yes/No Reference/Explanation The risk management process, discussed at Principle 7.3, includes a wide range of proprietary policies and procedures which have been developed specifically for the Company and its business. The Company believes it would be unreasonably prejudicial to its interests and inappropriate to disclose this information publically. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY 8.1 The board should establish a remuneration committee. Yes The Company has a Nominations and Remuneration Committee which meets as required each year. 8.2 The remuneration committee should be Yes structured so that it: • Consists of a majority of independent directors • Is chaired by an independent chair • Has at least three members 8.3 Companies should clearly distinguish Yes the structure of non-executive directors’ remuneration from that of executive directors and senior executives. 8.4 Additional information At the date of this report and throughout the reporting period the Company’s Remuneration Committee was: • comprised of non-executive directors being Mr Cave, Mr Grellman, Mr Godson, and Mr Pong. • chaired by Mr Cave, with 3 independent directors. • governed by a Charter approved by the Board sufficiently autonomous to be able to discharge its duties and responsibilities including the authority to select, retain and terminate external advisers as the Committee considers necessary without seeking approval of the board or management. Full details of the Company’s remuneration policy are set out in the Remuneration Report. Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report. The Nominations and Remuneration Committee Charter is available on the Company’s website. 20 Bisalloy Steel Group Limited2015 annual reportCORPORATE GOVERNANCE STATEMENT 2015continuedErnst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Bisalloy Steel Group Limited In relation to our audit of the financial report of Bisalloy Steel Group Limited for the financial year ended 30 June 2015, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Glenn Maris Partner 25 August 2015 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 21 S TAT EMEN T OF PROFIT OR LO S S for the year ended 30 June 2015 Continuing operations Sales of goods Revenue Cost of goods sold Gross profit Other income Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Termination expenses Operating profit/(loss) Finance costs Finance income Share of profit of joint venture Profit/(Loss) before income tax Income tax benefit/(expense) Profit/(Loss) after income tax Attributable to: Non-controlling interest Owners of the parent Other comprehensive income: Profit/(Loss) for the year Items that may be reclassified subsequently to profit or loss: Fair value gain/(loss) on cash flow hedges Income tax effect Foreign currency translation Income tax effect Other comprehensive income/(loss) for the period, net of tax Total comprehensive income/(loss) for the period, net of tax Attributable to: Non-controlling interest Owners of the parent Earnings per share for profit attributable to ordinary equity holders of the parent – Basic earnings per share (cents) – Diluted earnings per share (cents) 22 Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Notes 60,979 60,979 55,146 55,146 5(c) (47,529) (44,591) 13,450 10,555 5(a) 5(e) 5(b) 5(b) 6 7(a) 21(d) 550 (1,352) (2,510) (651) 22 (1,175) (3,149) (598) (4,803) (4,997) – 4,684 (946) 11 532 4,281 (1,462) 2,819 329 2,490 2,819 (1,161) (503) (1,143) 5 210 (1,431) 37 (1,394) 256 (1,650) (1,394) 2,819 (1,394) 96 (29) 67 (212) 63 (149) 1,598 (1,253) – 1,598 1,665 4,484 646 3,838 4,484 – (1,253) (1,402) (2,796) (163) (2,633) (2,796) 8 8 5.7 5.6 (3.8) (3.7) Bisalloy Steel Group Limited2015 annual reportCON S OLIDAT ED S TAT EMEN T OF FIN A NCI A L P O SITION As at 30 June 2015 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Other current assets Derivative financial instruments Total current assets Non-current assets Other financial assets Investment in joint venture Property, plant and equipment Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Deferred tax liabilities Total non-current liabilities Total liabilities NET ASSETS EQUITY Equity attributable to equity holders of the parent Contributed equity Accumulated profits Other reserves Parent interests Non-controlling interests TOTAL EQUITY Consolidated Notes 30 June 2015 $’000 30 June 2014 $’000 10(a) 11 12 7(e) 13 20 13 6 14 17 18 7(e) 19 20 18 19 7(d) 21(a) 21(e) 21(f) 21(d) 4,446 12,222 16,433 – 947 – 814 9,835 15,792 36 859 5 34,048 27,341 99 1,203 15,155 16,457 50,505 142 988 15,600 16,730 44,071 13,043 8,742 391 171 1,593 – 643 – 1,518 96 15,198 10,999 7,666 10,306 960 927 9,553 24,751 25,754 850 235 11,391 22,390 21,681 11,478 11,478 8,967 2,231 22,676 3,078 25,754 6,448 1,000 18,926 2,755 21,681 23 23 CON S OLIDAT ED S TAT EMEN T OF CA SH F LOW S for the year ended 30 June 2015 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs Income tax paid Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Notes 63,931 58,008 (56,225) (54,428) 11 (946) (563) 5 (1,143) (792) 1,650 9 (130) 755 634 (106) (539) (304) (1,128) (2,077) 207 (86) 693 814 Net cash inflow from operating activities 10(b) 6,208 Cash flows from investing activities Proceeds from sale of fixed assets Payments for property, plant and equipment Dividends received from investments Net cash inflow/(outflow) from investing activities Cash flows from financing activities Repayment of borrowings Deferred payments for investments Dividends paid to non-controlling interests Dividends paid to shareholders of the parent Net cash outflow from financing activities Net increase / (decrease) in cash held Net foreign exchange differences Cash at the beginning of the financial year Cash at the end of the financial year – (815) 316 (499) (1,873) – (323) – (2,196) 3,513 119 814 10(a) 4,446 24 Bisalloy Steel Group Limited2015 annual reportCON S OLIDAT ED S TAT EMEN T OF CH A NGE S IN EQUIT Y for the year ended 30 June 2015 Attributable to equity holders of the Company Employee equity benefits reserve $’000 Net gain/ (loss) on cash flow hedges $’000 Foreign currency translation reserve $’000 Issued capital $’000 Asset revaluation reserve $’000 Equity Settlement Reserve $’000 Retained earnings $’000 Non- controlling interest $’000 Total $’000 Total equity $’000 At 30 June 2014 11,478 396 (67) (1,854) 2,713 (188) 6,448 18,926 2,755 21,681 Profit for the period Other comprehensive income Depreciation transfer for building revaluation Total comprehensive income Transactions with owners in their capacity as owners: Ordinary dividends paid to shareholders (Note 9) Dividend Reinvestment Plan (Note 21) Dividends paid to non-controlling interests Share based payments (Note 15) Settlement of performance rights – – – – – – – – – At 30 June 2015 11,478 – – – – – – – (8) (118) 270 – – 67 1,281 – – – – (29) 67 1,281 (29) – – – – – – – – – – – – – – – – – – – – – – – – 38 2,490 2,490 329 2,819 – 1,348 317 1,665 29 – – – 2,519 3,838 646 4,484 – – – – – – – – (8) (80) – – – – (323) (323) – – (8) (80) (573) 2,684 (150) 8,967 22,676 3,078 25,754 At 30 June 2013 10,874 374 82 (1,020) 2,742 (202) 9,801 22,651 3,222 25,873 Profit for the period Other comprehensive income Depreciation transfer for building revaluation Total comprehensive income Transactions with owners in their capacity as owners: Ordinary dividends paid to shareholders (Note 9) – – – – – Dividend Reinvestment Plan (Note 21) 604 Dividends paid to non-controlling interests Share based payments (Note 15) Settlement of performance rights – – – At 30 June 2014 11,478 – – – – – – – 155 (133) 396 – – (149) (834) – – – – (29) (149) (834) (29) – – – – – – – – – – – – – – – – – – – – – – – 14 (1,650) (1,650) 256 (1,394) – (983) (419) (1,402) 29 – – – (1,621) (2,633) (163) (2,796) (1,732) (1,732) 604 – – (1,732) 604 – – – – – (304) (304) 155 (119) – – 155 (119) (67) (1,854) 2,713 (188) 6,448 18,926 2,755 21,681 25 25 NOT E S TO T HE CON S OLIDAT ED FIN A NCI A L S TAT EMEN T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 015 NOT E 1. C ORP OR AT E INF ORM ATION The financial report of Bisalloy Steel Group Limited and its subsidiaries (“the Group”) for the year ended 30 June 2015 was authorised for issue in accordance with a resolution of the directors on 25 August 2015. Bisalloy Steel Group Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. NOT E 2 . S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S TA B L E O F C O N T E N T S a. Basis of preparation b. Statement of compliance c. Basis of consolidation and investments in joint venture d. Significant accounting judgements, estimates and assumptions e. Operating segments f. Taxation g. Cash and cash equivalents h. Trade and other receivables i. Inventories j. Property, plant and equipment k. Trade and other payables l. Contributed equity m. Employee benefits n. Share-based payment transactions o. Provisions p. Interest bearing loans and borrowings q. Goods and services tax r. Revenue recognition s. Borrowing costs t. Leases u. Foreign currency translation v. Earnings per share (EPS) w. Derivative financial instruments and hedging x. Fair value measurement y. Changes in accounting standards d e t i i m L p u o r G l e e t S y o l l a s B i t r o p e r l a u n n a 5 1 0 2 a. Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for land and buildings classified as property, plant and equipment and derivative financial instruments, which are measured at fair value. 26 The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the class order applies. The consolidated financial statements provide comparative information in respect of the previous period. New Accounting Standards and Interpretations The accounting policies adopted are consistent with those of the previous financial year except the following which the Group adopted from 1 July 2014: • AASB 2012-3 Offsetting Financial Assets and Financial Liabilities • AASB 2014-1 Part A Annual Improvements to IFRSs 2010–2012 Cycle Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2015. Comparative information Certain comparative information was amended in these financial statements to conform to the current year presentation. These amendments do not impact the group’s financial result and do not have any significant impact on the Group’s balance sheet. b. Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. c. Basis of consolidation and investments in joint venture The consolidated financial statements comprise the financial statements of the Company, being Bisalloy Steel Group Limited, and its subsidiaries (“the Group”) as at the reporting date. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. under the circumstances. These estimates and underlying assumptions are reviewed on an ongoing basis. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. The Group has an interest in a joint venture, which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Group’s investment in the joint venture is accounted for using the equity method and is not part of the consolidated Group. Under the equity method, the investment in the joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. When there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The Group’s share of profit of the joint venture is shown on the face of the statement of profit or loss outside operating profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. d. Significant accounting judgements, estimates and assumptions In the application of the Group’s accounting policies as described below, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable Significant accounting judgements In applying the Group’s accounting policies, management have not made any significant accounting judgements which affect the amounts recognised in the financial statements. Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Net realisable value of inventory The Group undertakes a detailed review of its inventory by major product category to ensure its provisions reflect inventory at the lower of cost and net realisable value. This review takes into consideration management’s assessment of current and forecast market conditions, including drivers of the price of quenched and tempered steel and alloyed steel plate. Impairment of other non-financial assets Non-financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or group of assets (cash- generating units). Non-financial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have been reversed. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees (including directors and other senior executives) by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using discounted cash flow models using the assumptions dealt with in note 2(n). 27 NOT E 2 . S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S (C ON T IN U ED) e. Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. Operating segments have been identified and based on the information provided to the chief operating decision makers – being the executive management team. The Group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: • nature of the products and services, • when the deferred income tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • in respect of taxable temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, when the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • nature of production processes, • • type or class of customer for their products and services, • methods use to distribute their products or provide their services, and if applicable • nature of the regulatory environment. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. f. Taxation Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences except: 28 in respect of deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, deferred tax asset are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015g. Cash and cash equivalents Cash and short term deposits in the statement of financial position and the cash flow statement is comprised of cash at bank and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. h. Trade and other receivables Trade and other receivables are carried at amounts due less an allowance for any uncollectible amounts. The collectability of debts is assessed at balance date and provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Trade debtors are generally on 30-60 day terms. These are non-interest bearing. i. Inventories Raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials • Purchase cost is on an average cost basis. Work in progress and finished goods • Cost of direct materials, labour and an appropriate proportion of manufacturing overheads is based on normal operating capacity, but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. j. Property, plant and equipment Plant and equipment is stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if the recognition criteria are satisfied. All other repairs and maintenance are recognised in the profit or loss as incurred. Land and buildings are measured at fair value using the revaluation model, less accumulated depreciation on buildings and any impairment losses recognised after the date of the revaluation. Valuations are performed every three years, or sooner should there be a significant change in market conditions, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: • Land • Buildings not depreciated 50 years • Plant and equipment 5 – 10 years • Leasehold improvements 5 – 10 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted prospectively if appropriate, at each financial year end. Revaluations of land and buildings Any revaluation increment is credited to the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrement for the same asset previously recognised in profit or loss, in which case the increment is recognised in profit or loss. Any revaluation decrement is recognised in profit or loss, except to the extent that it offsets a previous revaluation increment for the same asset, in which case the decrement is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the revalued amounts of the assets. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the profit or loss. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit and loss in the period the item is derecognised. Information technology costs Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and / or cost reduction are capitalised to information technology costs. Amortisation is calculated on a straight line basis over periods not exceeding 10 years. k. Trade and other payables Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. l. Contributed equity Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any 29 NOT E 2 . S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S (C ON T IN U ED) transaction costs arising on the issue of ordinary shares are recognised directly in equity, net of tax, as a reduction of the share proceeds received. m. Employee benefits Liabilities arising in respect of short-term employee benefits such as wages, salaries, annual leave and sick leave represent the amount which the entity has a present obligation to pay resulting from employees’ services provided up to the balance date. Liabilities in respect of short-term employee benefits are measured at their nominal amounts. Long-term employee benefit liabilities such as long service leave represent the present value of the estimated future cash outflows to be made by the employer resulting from employees’ services provided up to the balance date. Long-term employee benefit liabilities are measured at their present values using corporate bond rates which most closely match the terms of maturity of the related liabilities. In determining the employee benefit liabilities, consideration has been given to future increases in wage and salary rates, and the consolidated entity’s experience with staff departures. Related on-costs have also been included in the liability. The Group contributes to several defined contribution superannuation plans. Contributions are charged against income as they are made. n. Share-based payment transactions Employees (including directors and other senior executives) of the Group receive remuneration in the form of a grant of Rights, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’). There is currently a Share Rights Plan in place to provide these benefits. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using a discounted cash flow methodology. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the issuer (‘market conditions’), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. This opinion is formed based on the best available information at balance date. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for Rights that do not ultimately vest. Any Rights that do not become vested Rights, lapse. The dilutive effect, if any, of outstanding Rights is reflected as additional share dilution in the computation of diluted earnings per share. o. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense related to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. p. Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. q. Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), or GST equivalents, such as Value Added Tax, except: • where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO), or equivalent foreign organisations. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expenses; • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are 30 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015recoverable from, or payable to, the ATO are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. r. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes and duty. The specific recognition criteria described below must also be met before revenue is recognised: Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the customer, which is on delivery of the goods. Revenue from the sale of goods is measured at fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Interest income Interest income is recognised as it accrues using the effective interest (EIR) method. The EIR is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to the net carrying amount of the financial asset. Interest income is included in finance income in the statement of profit or loss. Dividend income Dividend income is recognised when the Group’s right to receive the payment is established. s. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Bisalloy Steel Group Limited does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with this asset would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). t. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an agreement. Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and a reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in finance costs in the statement of profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. u. Foreign currency translation The Group’s consolidated financial statements are presented in Australian dollars (A$), which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the statement of financial position date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. The functional currency of the foreign operations is the currency in circulation in the country they each reside in. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the Company’s presentation currency (A$) at the rate of exchange ruling at balance date, and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognised in the foreign currency translation reserve within equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statement of comprehensive income. v. Earnings per share (EPS) Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members, adjusted for: • costs of servicing equity (other than dividends); 31 NOT E 2 . S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S (C ON T IN U ED) • the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. w. Derivative financial instruments and hedging The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. For the purpose of hedge accounting, hedges are classified as: • fair value hedges: when hedging the exposure to changes in the fair value of a recognised asset or liability; or • cash flow hedges: when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly forecast transaction. A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as described below: Cash Flow Hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the statement of profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profit or loss. Fair Value Hedges The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the statement of profit or loss as a finance cost. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedge financial instrument for which the effective interest method is used 1is amortised to the profit or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. x. Fair Value Measurement The Group measure financial instruments such as derivatives at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • in the principal market for the asset or liability, or 32 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015• in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting period. y. Changes in accounting standards Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2015. Those that may be applicable to the Group are outlined in the table below. Application date of standard Impact on Group financial report Application date for Group 1 January 2018 The 1 July 2018 amendments are not expected to have a significant impact on the financial statements Reference Title Summary AASB 9/IFRS 9 Financial Instruments On 24 July 2014 The IASB issued the final version of IFRS 9 which replaces IAS 39 and includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The final version of IFRS 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. The AASB is yet to issue the final version of AASB 9. A revised version of AASB 9 (AASB 2013-9) was issued in December 2013 which included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010- 7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. 33 NOT E 2 . S U MM A RY OF SIGNIFICA N T ACCO U N T ING P OLICIE S (CON TIN U ED) Application date of standard Impact on Group financial report Application date for Group 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements 1 January 2017 The 1 July 2017 amendments are not expected to have a significant impact on the financial statements 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements Reference Title Summary The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. IFRS 15 supersedes: (a) IAS 11 Construction Contracts (b) IAS 18 Revenue (c) IFRIC 13 Customer Loyalty Programmes (d) IFRIC 15 Agreements for the Construction of Real Estate (e) IFRIC 18 Transfers of Assets from Customers (f) SIC-31 Revenue—Barter Transactions Involving Advertising Services The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Early application of this standard is permitted. AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: a. a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and b. a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 IFRS 15 Revenue from Contracts with Customers AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 34 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015Reference Title Summary Application date of standard Impact on Group financial report Application date for Group AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) The subjects of the principal amendments to the Standards are set out below: AASB 5 Non-current Assets Held for Sale and Discontinued Operations: • Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: • Servicing contracts – clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. • Applicability of the amendments to AASB 7 to condensed interim financial statements – clarify that the additional disclosure required by the amendments to AASB 7 Disclosure– Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 119 Employee Benefits: • Discount rate: regional market issue – clarifies that the high quality corporate bonds used to estimate the discount rate for post- employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting: • Disclosure of information ‘elsewhere in the interim financial report’ – amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. 1 July 2016 1 July 2016 The amendments are not expected to have a significant impact on the financial statements 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements. AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. 1 July 2015 1 July 2015 The amendments are not expected to have a significant impact on the financial statements. 35 NOT E 3. FIN A NCI A L RISK M A N AGEME N T Overview The Group has exposure to the following risks from their use of financial instruments: • Credit risk • Liquidity risk • Market risk The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the board. The board has established an Audit and Risk Committee comprising non-executive directors, whose meetings are also attended by the executive directors. In addition sub-committees are convened as appropriate in response to issues and risks identified by the board, and the sub-committee further examines the issue and reports back to the board. The board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the board. These include the following: • Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk. • Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. • The establishment of committees to report on specific business risks, including for example, matters such as environmental issues and concerns and occupational health and safety. • The board reviews financial risks such as the Group’s liquidity, currency, interest rate and credit policies and exposures and monitors management’s actions to ensure they are in line with Group policy. Credit risk Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group has a narrow customer base and has the potential to be exposed to credit risk on a specific customer. A credit policy is in place, the objective of which is: • To ensure all credit worthiness checks are carried out prior to opening new credit accounts and appropriate authorisations obtained; • To ensure the approved credit limit is appropriate to the inherent risk of trading with any particular customer; • To ensure all orders are converted into cash within trading terms; • To minimise late payments and any potential bad debts through the constant application of sound commercial debtor management on a continuing basis; The credit policy requires credit insurance to be taken out against customers where the concentration risk of trading with any specific customer is assessed as high. Goods are sold subject to retention of title clauses that permit the Group to reclaim stock from a customer up to the value of monies owed in the event: • Official Manager • Receiver and Manager • Administrator • Liquidator or similar business administration is appointed to the customer’s business. The Group has established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss is based on historical data of payment statistics for similar financial assets. The maximum exposure to credit risk for these financial assets is limited to their carrying amounts as disclosed in note 11. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as and when they fall due without incurring unacceptable losses or risking damaging the Group’s reputation. On 30 June 2015 the Group renewed its facility agreement which currently comprises a $7.67m term loan and $12m revolver borrowing facility. The drawn revolver facility balance is limited to the value of the available collateral and fluctuates daily. Eligible trade receivables, eligible inventory, plant and equipment and real property constitute available collateral. At reporting date, the carrying amount of assets pledged as collateral was $40.7m (2014: $34.8m). In addition to the eligible collateral, the Group have several general and financial undertakings which they 36 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015must comply with including a $6m (2014: $6m) limit on capital expenditure, a Tangible Net Worth covenant, and a Fixed Charge Coverage Ratio covenant. Due to the nature of the facility, cashflow is managed on a daily basis, comparing actual against forecast collateral, receipts and payments. Each month a complete review is undertaken of the projected daily cashflow. Contractual maturity of financial liabilities The table below reflects all contractually fixed payments for settlement, repayments and interest resulting from recognised financial liabilities, including derivative financial instruments as at 30 June 2015. For derivative financial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing at 30 June 2015. 6 months or less 6-12 months 1-5 years Over 5 years Consolidated 2015 $’000 13,421 849 9,239 – 2014 $’000 9,792 967 11,478 - 23,509 22,237 37 NOT E 3. FIN A NCI A L RISK M A N AGEME N T (CON T IN U ED) Management analysis of financial assets and liabilities The table below is based on management expectations of the timing of cash inflows and outflows from its financial assets and liabilities which reflect a balanced view of cash inflows and outflows. Net settled derivatives comprise forward exchange contracts that are used to hedge future sales and purchase commitments. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital (e.g., inventories and trade receivables). These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, the Group has established comprehensive risk reporting covering its operation that reflects expectations of management of expected settlement of financial assets and liabilities. <=6 months $’000 6-12 months $’000 1-5 years $’000 >5 years $’000 Total $’000 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Income tax receivable Derivatives1 Inflows Outflows Financial liabilities Trade and other payables Interest bearing loans and borrowings2 Income tax payable Derivatives – gross settled1 Inflows Outflows Net inflow/(outflow) 4,446 12,222 – – – 16,668 13,043 207 171 – – 13,241 3,247 – – – – – – – – – – – – 849 9,239 – – – – – – 849 9,239 (849) (9,239) – – – – – – – – – – – – 4,446 12,222 – – – 16,668 13,043 10,295 171 – – 23,509 (6,841) 1. Derivatives are measured at fair value through other comprehensive income. 2. Interest bearing loans and borrowings are measured at fair value through the profit and loss. M A R K E T R I S K Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising return. Foreign exchange risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in different currency from the Group’s functional currency) and the Group’s net investment in foreign subsidiaries. The Group manages its foreign currency risk by hedging transactions that are expected to occur within a maximum twelve month period. The Group generally adopts a policy of covering exchange exposures related to purchases and sales of product at the time they are incurred or committed. 38 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 Throughout the year the foreign exchange risk has been actively managed through periodic risk assessments. The objective of these assessments is to stratify foreign exchange exposure into risk categories and enable available hedge facilities to be applied to those assessed as higher risk. Risk assessments take into account macro economic lead indicators such as interest rate differentials, inflation rate differentials and externally published market analytical data to determine the likelihood of movement in exchange rates. The likelihood is applied to the Group’s foreign currency exposure to determine financial impact on a sensitivity basis. Sensitivity analysis The following table summarises the sensitivity of financial instruments held at balance date to possible movements in the exchange rate of the Australian dollar to foreign currencies, with all other variables held constant. The +10%/-10% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 year period, along with consideration for current market trends. Sensitivity to USD Consolidated AUD/USD +10% AUD/USD -10% Post tax profit Higher / (Lower) Effect on equity Higher / (Lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 (149) 182 283 (346) – – 189 (231) Interest rate risk The Group’s borrowing facility has a variable interest rate attached to it. The Group monitors the underlying interest rate outlook and considers the use of interest rate derivatives (principally swaps) to manage the exposure to interest rate fluctuations. The Group’s exposure to market interest rates relates primarily to the Group’s interest bearing borrowings. At 30 June 2015, the Group had the following mix of financial assets and liabilities exposed to variable interest rates that are not designated in cash flow hedges. Financial Assets Cash and cash equivalents Financial Liabilities Bank loans Net exposure Consolidated 2015 $’000 2014 $’000 877 810 (8,057) (10,949) (7,180) (10,139) Interest rate sensitivity analysis The following table summarises the sensitivity of the fair value of financial instruments held at the balance date following a movement in interest rates, with all other variables held constant. The +1.0/-1.0 basis points sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding 5 year period. Consolidated +1.0% (100 basis points) -1.0% (100 basis points) Post tax profit Higher / (Lower) 2015 $’000 2014 $’000 Other comprehensive income Higher / (Lower) 2015 $’000 2014 $’000 (50) 50 (71) 71 – – – – 39 NOT E 3. FIN A NCI A L RISK M A N AGEME N T (CON T IN U ED) C O M M O D I T Y R I S K The Group does not hedge for movements in the underlying price of product, but manages commodity risk within the parameters of the markets within which it trades. Assets/Liabilities Measured at Fair value The Group uses various methods in estimating the fair value of assets and liabilities. The methods comprise: Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is calculated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The fair value of the assets and liabilities as well as the methods used to estimate the fair value are summarised in the table below. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. At 30 June 2015 the fair values of land, buildings and improvements were determined by reference to valuations performed in June 2014. For properties not subject to independent valuations, fair value was determined by Directors’ valuation. Year ended 30 June 2015 Valuation technique- market observable inputs (Level 2) $000 Valuation technique- non market observable inputs (Level 3) $000 Quoted market price (Level 1) $000 Year ended 30 June 2014 Valuation technique- market observable inputs (Level 2) $000 Valuation technique- non market observable inputs (Level 3) $000 Total $000 Quoted market price (Level 1) $000 Total $000 Consolidated Assets Land & Buildings Foreign exchange contracts Liabilities Foreign exchange contracts – – – – – – – – – – 7,837 7,837 – – 7,837 7,837 – – – – – 5 5 96 96 7,922 7,922 – 5 7,922 7,927 – – 96 96 – – – – The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Transfer between categories There were no transfers between levels during the year. The fair value of interest bearing loans and borrowings approximates the carrying value. NOT E 4 . OPE R AT ING SEGME N T S I D E N T I F I C AT I O N O F R E P O R TA B L E S E G M E N T S The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on country of origin. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis. 40 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015The reportable segments are based on aggregated operating segments determined by the similarity of economic characteristics. Geographical areas Australian operations The Australian operations are comprised of Bisalloy Steels Pty Limited and Bisalloy Steel Group Limited. Bisalloy Steels Pty Limited distributes wear-grade and high tensile plate through distributors and directly to original equipment manufacturers in both Australia and Overseas. Bisalloy Steels is located in Unanderra, near Wollongong, NSW. Bisalloy Steel Group Limited is the corporate entity, also located in Unanderra NSW, which incurs expenses such as head office costs and interest. All corporate charges relate to the Australian operations and are linked to Australian segment revenue only. Overseas operations The overseas operations comprise of PT Bima Bisalloy and Bisalloy (Thailand) Co Limited located in Indonesia and Thailand respectively. These businesses distribute Bisalloy Q&T plate as well as other steel plate products. The overseas operations include the co-operative joint venture Bisalloy Jigang Steel Plate (Shandong) Co.,Ltd in the People’s Republic of China for the marketing and distribution of quench & tempered steel plate. Accounting policies and inter-segment transactions The accounting policies used by the Group in reporting segments internally are the same as those contained in note 2 to the accounts and in the prior period except as detailed below: Inter-entity sales Inter-entity sales are recognised based on an internally set transfer price. This price is set monthly and aims to reflect what the business operation could achieve if they sold their output to external parties at arm’s length. Major customers The group has a number of customers to which it provides products. There are four major distributors who account for 18% (2014: 16%), 16% (2014: 18%), 11% (2014: 16%) and 9% (2014: 1%) of total external revenue. All these customers are in the Australian operating segment. Year ended 30 June 2015 Australia $’000 Overseas $’000 Total $’000 Revenue: Sales to external customers 47,379 13,600 60,979 Inter-segment sales 6,954 – 6,954 Total segment revenue Inter-segment elimination Total consolidated revenue Segment net operating profit after tax Interest income Interest expense Depreciation Share of profit of joint venture 54,333 13,600 67,933 (6,954) 60,979 1,630 1,189 2,819 9 905 1,242 – 2 41 68 532 428 11 946 1,310 532 1,462 Income tax expense 1,034 Segment assets 43,876 14,395 58,271 Capital expenditure 798 17 815 Segment liabilities 22,234 2,153 24,387 41 NOT E 4 . OPE R AT ING SEGEME N T S (CON TIN U ED) Year ended 30 June 2014 Australia $’000 Overseas $’000 Total $’000 Revenue from external customers by geographical location is detailed below. Revenue is attributed to geographic location based on the location of the customers. Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 37,396 37,108 9,290 4,641 9,652 7,961 5,546 4,531 Australia Indonesia Thailand Other foreign countries Total revenue 60,979 55,146 ii) Segment net operating profit after tax reconciliation to the statement of comprehensive income The executive management committee meets on a monthly basis to assess the performance of each segment by analysing the segment’s net operating profit after tax. A segment’s net operating profit after tax excludes non operating income and expense such as dividends received, fair value gains and losses and impairment charges. Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Reconciliation of segment net operating profit after tax to net profit before tax Segment net operating profit / (loss) after tax Income tax expense / (benefit) Total net profit / (loss) before tax per the statement of profit or loss 2,819 1,462 (1,394) (37) 4,281 (1,431) Revenue: Sales to external customers 41,558 13,588 55,146 Inter-segment sales 6,117 – 6,117 Total segment revenue Inter-segment elimination Total consolidated revenue Segment net operating profit / (loss) after tax Interest income Interest expense Depreciation Share of profit of joint venture Income tax (benefit)/expense 47,675 13,588 61,263 (6,117) 55,146 (2,460) 1,066 (1,394) 2 1,122 1,413 – (378) 3 21 83 210 341 5 1,143 1,496 210 (37) Segment assets 38,724 13,858 52,582 Capital expenditure 88 42 130 Segment liabilities 20,375 3,125 23,500 Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 i) Segment revenue reconciliation to the statement of comprehensive income Total segment revenue 67,933 61,263 Inter-segment sales elimination (6,954) (6,117) Total revenue 60,979 55,146 42 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015iii) Segment assets reconciliation to the statement of financial position In assessing the segment performance on a monthly basis, the executive management committee analyses the segment result as described above and its relation to segment assets. Segment assets are those operating assets of the entity that the management committee views as directly attributing to the performance of the segment. These assets include plant and equipment, receivables, inventory and intangibles and exclude available-for-sale assets, derivative assets, deferred tax assets, and pension assets. Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Reconciliation of segment operating assets to total assets Segment operating assets 58,271 52,582 Inter-segment eliminations (7,766) (8,552) Income tax receivable Derivative assets – – 36 5 Total assets per the statement of financial position 50,505 44,071 The analysis of the location of non-current assets other than financial instruments, deferred tax assets, pension assets is as follows: Australia Overseas Total assets 15,934 16,205 523 525 16,457 16,730 iv) Segment liabilities reconciliation to the statement of financial position Segment liabilities include trade and other payables and debt. The Group has a centralised finance function that is responsible for raising debt and capital for the Australia operations. Each Australian entity or business uses this central function to invest excess cash or obtain funding for its operations. The executive management committee reviews the level of debt for each segment in the monthly meetings. Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Reconciliation of segment operating liabilities to total liabilities Segment operating liabilities 23,387 23,500 Inter-segment eliminations (3,164) (3,809) Income tax payable Provisions Derivative financial instruments Deferred tax liabilities 171 2,553 – 1,804 – 2,368 96 235 Total liabilities per the statement of financial position 24,751 22,390 NOT E 5. RE V E N U E A ND E X PE N SE S Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 (a) Other (income)/expenses Foreign exchange losses/(gains) Other income (b) Finance income and costs Bank interest and borrowing costs Total finance costs Bank interest Total finance income (528) (22) (550) 946 946 (11) (11) (19) (3) (22) 1,143 1,143 (5) (5) 43 NOT E 5. RE V E N U E A ND E X PE N SE S (CON TIN U ED) Dividends of $316,416 were received from the JV during the year. Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Consolidated 30 June 2015 $’000 30 June 2014 $’000 (c) Depreciation and costs of inventories included in statement of comprehensive income Depreciation and amortisation 1,310 1,496 Costs of inventories recognised as an expense 47,529 44,591 (d) Lease payment and other expenses included in statement of profit or loss Rental – operating leases 300 315 (e) Employee benefits expense Wages and salaries Superannuation costs Expense of share-based payments 9,410 722 (8) 800 155 Joint venture’s statement of financial position: Current assets, including cash of $2,604,000 (2014: $1,103,000) Non-current assets Current liabilities Equity Joint venture’s revenue and profit: Revenue Expenses Profit before income tax Income tax and statutory reserves Profit for the year Group’s share of profit Carrying amount of the investment 10,369 Finance income 6,724 97 (1,546) 5,275 12,315 (10,748) 49 1,616 (552) 1,064 532 3,737 101 (40) 3,798 5,622 (5,010) 33 645 (225) 420 210 1,203 988 The assets and liabilities are disclosed at their carrying value which is assumed to approximate their fair value. The joint venture has no capital commitments or contingent liabilities at 30 June 2015. 10,124 11,324 During the prior year the Group incurred a charge for termination costs in respect of the restructure of the Australian operations of $1,161,000 which was included in the expense for wages and salaries. No termination costs were incurred in 2015. NOT E . 6. IN V E S T ME N T IN A J OIN T V E N T U RE In July 2011 the Group signed a Cooperative Joint Venture Agreement with Jigang Iron & Steel Co., Limited to establish Bisalloy Jigang Steel Plate (Shandong) Co., Limited (‘the joint venture’) for the marketing and distribution of quench & tempered steel plate in the People’s Republic of China and other international markets. Under the terms of the JV, Bisalloy has contributed US$1 million in capital and licenced its Q&T intellectual property and brand name to the joint venture to produce quench & tempered steel plate at Jinan’s production facility in Shandong Province, PRC for a 33% ownership of the equity and a 50% share in the operating result of the joint venture. 44 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 NOT E 7. INC OME TA X (a) Income Tax Expense The major components of income tax expense are: Income Statement Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax expense/(benefit) The income tax expense/(benefit) for the period is disclosed as follows: Income tax expense attributable to continuing operations (b) Amounts charged or credited directly to equity Deferred income tax related to items charged or credited directly to equity Net gain/(loss) on revaluation of derivative assets Income tax expense/(benefit) reported in equity Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 799 – 799 663 1,462 1,462 1,462 29 29 524 (65) 459 (496) (37) (37) (37) (63) (63) (c) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate Accounting profit before tax and adjustments 4,294 (1,431) At the Group’s statutory income tax rate of 30% (2014: 30%) Income assessable for tax purposes Expenditure not allowable for tax purposes De-recognition of foreign income tax credits Income not assessable for tax purposes Expenditure allowable for tax purposes Foreign tax credits allowed Excess foreign tax credits lost Non-allowable withholding tax on foreign joint venture dividend Adjustments in respect of current income tax of previous years Adjustments in respect of deferred income tax of previous years Income tax expense/(benefit) on pre-tax net profit 1,288 405 76 (160) (57) (182) – – 32 – 60 1,462 (429) 304 120 – (63) (83) – 179 – (65) – (37) 45 NOT E 7. INC OME TA X (C ON T IN U ED) Statement of financial position Statement of comprehensive income Equity Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 (d) Deferred income tax Deferred income tax at 30 June relates to the following: CONSOLIDATED Accelerated depreciation for tax purposes (1,737) (1,734) 3 14 Tax losses available for offset against future taxable benefits Employee entitlement provisions Other provisions and accruals Inventory Other Foreign income tax credits Derivatives – 548 40 92 130 – – 732 552 20 65 103 – 27 Deferred tax (liabilities)/assets reflected in the balance sheet (927) (235) Deferred tax credit/expense Equity 732 4 (20) (27) (27) – (2) (732) 96 24 (5) 111 – (4) 663 (495) – – – – – – – – – – – – 29 (63) 29 (63) (e) Current income tax at 30 June relates to the following: The current tax payable for the Consolidated entity of $171,047 (2014: asset of $36,303) represents the amount of income tax payable in respect of the current and prior periods that arises from the payment of tax in deficit of the amounts due to the relevant tax authority. The Consolidated entity liability includes both the income tax payable by all members of the tax consolidated group and those members outside the tax consolidated group and outside the Australian tax jurisdiction. (f) Unrecognised temporary differences At 30 June 2015, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries, as the Group has no liability for additional taxation should unremitted earnings be remitted (2014: Nil). (g) Tax consolidation (i) Members of the tax consolidation group and the tax sharing arrangement Effective 1 July, 2003, for the purposes of income taxation, the Company and its 100% owned Australian subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement. This arrangement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of a default is remote. The head entity of the group is Bisalloy Steel Group Limited. (ii) Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The allocation of taxes under the tax funding agreement is recognised under the separate tax payer within a group approach. Allocations under the tax funding agreement are made on a semi annual basis. The amount that is allocated under the tax funding agreement is done so in accordance with a method permitted by UIG1052 and is recognised by way of an increase or decrease in the subsidiaries intercompany accounts. 46 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015NOT E 8 . E A RNING S PE R SH A RE ( E P S) The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit/(loss) for the period Net profit attributable to non-controlling interest holders Net profit/(loss) attributable to equity holders of the parent (used in calculating basic and diluted EPS) Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 2,819 329 (1,394) 256 2,490 (1,650) Thousands Thousands Weighted average number of ordinary shares for basic earnings per share 43,987 43,726 Effects of dilution: Performance rights 423 876 Adjusted weighted average number of ordinary shares for diluted earnings per share 44,410 44,602 Weighted average number of lapsed or cancelled potential ordinary shares included in diluted earnings per share – – NOT E 9. DI V IDE NDS PA ID OR PROP O SED (a) Dividends paid during the year Interim 2015 – Nil (2014: Nil) Final 2014 Nil (2013: 4.0 cents per share) (b) Proposed dividend (not recognised as a liability as at 30 June) Final dividend for 2015: 4.0 cents per share (2014: Nil) (c) Franking credit balance The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% Franking debits that will arise from the refund of tax as at the end of the financial year Franking debits that will arise from the payment of dividends as at the end of the financial year Consolidated Year ended 30 June 2015 $’000 Year ended 30 June 2014 $’000 – – – – 1,732 1,732 1,759 – 4,519 4,341 (10) (754) – – 3,755 4,341 47 NOT E 10. CA SH A ND CA SH EQUI VA L E N T S (a) Reconciliation of cash For the purpose of the cash flow statement, cash and cash equivalents comprise the following at 30 June: Cash at bank Cash at hand Total As at 30 June 2015 $3.57m of the above cash related to a surplus in the working capital facility with GE. This cash can only be used by the group for working capital purposes in the ordinary course of business. Refer to Note 18 for further information about this facility. (b) Reconciliation of net profit after income tax to net cash provided by operations Net profit/(loss) after tax Non cash items Depreciation and amortisation Share-based payments expense Net profit on disposal of property, plant and equipment Impairment and write-off of current assets Share of profit of a joint venture Net fair value change on derivatives Change in operating assets and liabilities (Increase)/decrease in receivables and other assets Decrease/(increase) in foreign currency translation (Increase)/decrease in inventories Increase/(decrease) in tax assets and liabilities (Increase)/decrease in other financial assets (Increase)/decrease in prepayments Increase/(decrease) in trade creditors Increase/(decrease) in provisions Settlement of share rights Net cash used in operating activities (c) Disclosure of financing facilities Refer note 18. 48 Consolidated 30 June 2015 $’000 30 June 2014 $’000 4,444 2 4,446 810 4 814 2,819 (1,394) 1,310 (8) – 31 (532) 24 (2,387) 360 (672) 899 43 (88) 1,496 155 3 (2) (210) 74 2,306 (1,053) 5,878 (829) – 45 4,301 (4,409) 184 (76) (291) (119) 6,208 1,650 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015NOT E 11. T R A DE A ND OT HE R RECEI VA BL E S Current Trade receivables Less: Provision for doubtful debts Other Consolidated 30 June 2015 $’000 30 June 2014 $’000 12,205 9,670 (45) (15) 12,160 62 12,222 9,655 180 9,835 Trade receivables are non-interest bearing and are generally on 30-60 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. At 30 June, the ageing analysis of trade receivables is as follows: Total $’000 12,205 9,670 0-30 Days $’000 7,619 6,989 31-60 Days $’000 3,583 1,652 61-90 Days PDNI* $’000 649 288 61-90 Days CI* $’000 – – +91 Days PDNI* $’000 309 726 +91 Days CI* $’000 45 15 2015 Consolidated 2014 Consolidated * Past due not impaired (‘PDNI’) Considered impaired (‘CI’) Receivables past due and considered impaired are $45,480 (2014: $15,000) which relate to specific receivables. Credit has been stopped on these accounts until full payment is made. Receivables over 91 days past due not impaired relate accounts within the Indonesian and Thailand subsidiaries for which repayment terms have been renegotiated. The Group reports the aged status of receivables against original terms of trade and does not adjust for renegotiated terms. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. Foreign exchange and interest rate risk Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3. NOT E 12 . IN V E N T ORIE S Current Raw materials and stores Finished goods Consolidated 30 June 2015 $’000 30 June 2014 $’000 2,438 13,995 16,433 869 14,923 15,792 (a) Inventory expense Inventories recognised as an expense for the year ended 30 June 2015 totalled $47,529,000 (2014: $44,591,000). This expense has been included in the cost of sales line item as a cost of inventories. The amount expensed includes $30,914 (2014: $2,253) for the Group relating to inventory write-downs. 49 NOT E 13. OT HE R FIN A NCI A L A S SE T S Current Prepayments Non-current Prepayments Consolidated 30 June 2015 $’000 30 June 2014 $’000 947 947 99 99 859 859 142 142 NOT E 14 . PROPE R T Y, PL A N T A ND EQUIPME N T (a) Reconciliation of carrying amounts at the beginning and end of the period Consolidated Year ended 30 June 2015 Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 At 1 July 2014, net of accumulated depreciation and impairment 7,922 25 7,653 15,600 Additions Disposals Revaluations Depreciation and amortisation charge for the year Exchange adjustment – – – (123) 38 – – – – – 815 815 – – – – (1,187) (1,310) 12 50 At 30 June 2015, net of accumulated depreciation and impairment 7,837 25 7,293 15,155 At 1 July 2014 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2015 Cost or fair value Accumulated depreciation and impairment Net carrying value 9,248 (1,326) 7,922 9,234 (1,397) 7,837 58 (33) 25 60 (35) 25 16,482 25,788 (8,829) (10,188) 7,653 15,600 17,250 26,544 (9,957) (11,389) 7,293 15,155 50 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 (a) Reconciliation of carrying amounts at the beginning and end of the period (continued) Consolidated Year ended 30 June 2014 Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 At 1 July 2013, net of accumulated depreciation and impairment 8,110 26 8,953 17,089 Additions Disposals Revaluations Depreciation and amortisation charge for the year Exchange adjustment At 30 June 2014, net of accumulated depreciation and impairment At 1 July 2013 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2014 Cost or fair value Accumulated depreciation and impairment Net carrying value 23 - - (124) (87) 7,922 9,297 (1,187) 8,110 9,248 (1,326) 7,922 - - - (1) - 25 58 (32) 26 58 (33) 25 107 (12) - 130 (12) - (1,371) (1,496) (24) (111) 7,653 15,600 16,391 25,746 (7,438) (8,657) 8,953 17,089 16,482 25,788 (8,829) (10,188) 7,653 15,600 (b) Revaluation of freehold land and freehold buildings In 2014, the Group engaged Colliers International, an accredited independent valuer, to determine the fair value of its Australian land and buildings. Fair value is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Fair value is determined by direct reference to recent market transactions on arm’s length terms for land and buildings comparable in size and location to those held by the Group, and to market based yields for comparable properties. The effective date of the valuation was 30 June 2014 and fair value was determined as $7,850,000. In determining the current Fair Value of the property a Depreciated Replacement Cost (DRC) Approach was adopted. This method is used when there is limited transaction evidence, and principally applies to specialised property assets. The DRC Approach involves the addition of the deprecated value of the existing improvements to the underlying land value. There has been no change in the valuation technique in current or prior period. For June 2015, it was determined by Directors valuation that there was no significant change in fair value. (c) Carrying amounts if land and buildings were measured at cost less accumulated depreciation and impairment If land and buildings were measured using the cost model the carrying amounts would be as follows: Cost Accumulated depreciation and impairment Net carrying amount 2015 Freehold land and buildings $’000 2014 Freehold land and buildings $’000 5,234 (1,274) 3,960 5,247 (1,203) 4,044 51 The following table lists the valuation outputs for outstanding grants as at 30 June 2015: Grant 4 Grant 5 Expiry term of three years Value of one right Proportion of rights that vest $1.19 $0.74 100% 0% The fair value of the performance rights granted is brought to account as an expense in the profit and loss over the three year vesting period. The following table shows the number of rights outstanding during the year and in the previous year. The expense recognised in the statement of comprehensive income in relation to share based payments is disclosed in note 5(e). 15. SH A RE- BA SED PAY ME N T S PL A N S Long Term Incentives (LTI) Plan The LTI program has been designed to align the remuneration received by executive directors and senior managers with the creation of shareholder wealth. Consequently LTI grants are only made to executives who are in a position to influence shareholder wealth and thus have the opportunity to influence the company’s performance against the relevant long term performance hurdles. Structure At the 2012 Annual General Meeting, an LTI plan was renewed for LTI grants to executives in the form of share rights. These rights are granted in two equal parts. The first part is based on retention and requires the holder remain an employee for three years from grant date. The second part is based on delivering superior long- term performance as measured by Return on Equity (“ROE”), with each grant of rights divided into three equal tranches. For each tranche, actual ROE is measured against a budget ROE and a stretch ROE as determined annually by the board in respect of the forthcoming year. The proportion of the rights which vest depend on where within this range the Group performs, with 100% vesting on achieving the stretch ROE and no rights vesting if actual ROE is less than 90% of the budgeted ROE. For the 2015 year, the stretch ROE was set at 115% of the budget ROE. Any rights to which the employee may become entitled on achieving the performance criteria, are still subject to the three year retention criteria before they can vest. Any share rights which do not vest, as a result of the relevant performance condition not being satisfied, lapse. If the holder leaves the business, the unvested rights lapse on the leaving date unless the board determines otherwise. In the event of a change in control of the Group, the vesting date will generally be brought forward to the date of change of control and share rights will vest subject to performance over this shortened period, subject to ultimate board discretion. Once vested a holder may exercise his share rights and be allocated a fully paid ordinary share of Bisalloy at no cost to the employee. During the 30 June 2015 financial year no share rights were granted to executives under this scheme. The share rights have been valued by Mercer (Australia) Pty Ltd. A fair value expressed as a value per share right has been determined as at the grant date for each grant of rights. The rights have been valued according to a discounted cash flow (DCF) methodology. The share price at valuation date and a nil dividend yield for Grant 3; a 5% dividend yield for Grant 4 and a 4.5% dividend yield for Grant 5 (based on historic and future estimates at the time) formed the basis of the valuation. Refer to note 2(n) for further details on the valuation methodology. 52 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015Grant 2 Vested Grant 3 Unvested Grant 4 Unvested Grant 5 Unvested Total Grant date Expiry date Exercise price 22 March 2010 1 July 2011 4 Jan 2013 1 July 2013 30 June 2013 30 June 2014 4 Jan 2016 30 June 2016 $0.00 $0.00 $0.00 $0.00 Balance at 30 June 2013 133,334 249,999 416,667 – 800,000 New grants in the year Exercised in the year Lapsed during the year Balance at 30 June 2014 Exercisable at 30 June 2014 New grants in the year Exercised in the year Lapsed during the year Balance at 30 June 2015 Exercisable at 30 June 2015 – (133,334) – – – – 200,000 200,000 – (133,334) – – – – – – – (49,998) (83,334) (33,333) (166,665) 200,001 333,333 166,667 700,001 200,001 (200,001) – – – 200,001 – (200,001) – – – (83,333) (166,667) (250,000) 250,000 – – – 250,000 – The weighted average remaining contractual life for the share rights outstanding as at 30 June 2015 is 0.25 years (2014: 1.5 years). Share Rights Plan The net amount entered in the Profit or Loss in relation to the above for the current year was a credit of $ 8,462 (2014: expense $154,534). NOT E 16. PE N SION S A ND OT HE R P O S T- EMPLOY ME N T BE NE FIT PL A N S Superannuation commitments The Company makes superannuation contributions on behalf of employees to externally managed defined contribution superannuation funds. The contributions are defined by the terms of each individual employee’s employment and fully vest at the time the contributions are made. NOT E 17. T R A DE A ND OT HE R PAYA BL E S Current Trade payables Other payables and accruals Goods and services tax Consolidated 30 June 2015 $’000 30 June 2014 $’000 11,634 1,432 (23) 7,950 753 39 13,043 8,742 Trade payables are non-interest bearing and are normally settled on 30 day terms. Other payables and accruals are non-interest bearing and have an average term of three months. 53 NOT E 17. T R A DE A ND OT HE R PAYA BL E S (CON T IN U ED) Fair value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3. NOT E 18 . IN T E RE S T- BE A RING LOA N S A ND BORROW ING S Assets pledged as security The fixed and floating charge covers all current and future assets of the Bisalloy Closed Group (note 23). Consolidated 30 June 2015 $’000 30 June 2014 $’000 At reporting date, the following financing facilities had been negotiated and were available: Total facilities – revolver facility (i) 12,000 14,000 – term loan (i) Consolidated – Bisalloy Thailand facility (ii) 30 June 2015 $’000 30 June 2014 $’000 – PT Bima facility (iii) Current Borrowings secured by fixed and floating charges 391 643 Non-current Borrowings secured by fixed and floating charges 7,666 10,306 Fair values Unless disclosed below, the carrying amount of the Group’s current and non-current borrowings approximate their fair value. Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in note 3. Facilities used at reporting date – revolver facility – term loan – Bisalloy Thailand facility – PT Bima facility Facilities unused at reporting date – revolver facility (incl. bank guarantees) – term loan – Bisalloy Thailand facility – PT Bima facility 7,666 964 1,530 9,672 818 1,257 22,160 25,747 – 7,666 – 391 634 9,672 – 643 8,057 10,949 12,000 13,366 – 964 1,139 – 818 614 14,103 14,798 (i) On 30 June 2015 Bisalloy Steel Group Ltd entered into a renewed facility with GE Commercial Australasia Pty Ltd, with a maturity date of 30 June 2018. This facility provides Bisalloy Steel Group Limited and Bisalloy Steels Pty Ltd with a: • $12m revolving loan facility; and • $7.67m term loan facility The facility is secured by a fixed and floating charge over all assets of the Closed Group. The facility is subject to usual provisions such as negative covenants and various undertakings, including compliance with a fixed charge coverage ratio. The drawn revolver facility balance is limited to the value of the available collateral and fluctuates daily. Eligible trade receivables, eligible inventory, plant and equipment and real property constitute available collateral. The facility is variable rate linked to an interest rate plus a fixed margin. The average variable interest rate for the year is 5.51% (2014: 5.63%). 54 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 (ii) The Group had a THB 22m promissory note facility and a THB 3m bank overdraft facility available to its Thailand based subsidiary as at 30 June 2015. These facilities are secured by a guarantee from Bisalloy Steel Group Limited. (iii) The Group has an IDR 1billion and USD$600,000 revolver facilities available to its Indonesian based subsidiary as well as a Letter of Credit facility totalling USD$500,000. These facilities are secured by a charge over the assets of the Indonesian subsidiary. NOT E 19. PROV ISION S Consolidated At 1 July 2014 Arising during the year Utilised At 30 June 2015 Current 2015 Non-current 2015 Current 2014 Non-current 2014 Employee entitlements $’000 Total $’000 2,369 2,369 850 (666) 850 (666) 2,553 2,553 1,593 960 2,553 1,518 850 2,368 1,593 960 2,553 1,518 850 2,368 Long Service Leave Refer to note 2(m) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision. NOT E 2 0. DE RI VATI V E FIN A NCI A L IN S T RU ME N T S Current Assets Forward currency contracts – Cash flow hedges Forward currency contracts – Fair value hedges Current Liabilities Forward currency contracts – Cash flow hedges Forward currency contracts – Fair value hedges Consolidated 30 June 2015 $’000 30 June 2014 $’000 – – – – – – – 5 5 96 – 96 Instruments used by the Group Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates. 55 NOT E 2 0. DE RI VATI V E FIN A NCI A L IN S T RU ME N T S (CON TIN U ED) Forward currency contracts Inventory purchases During the year ended 30 June 2014, in order to protect against exchange rate movements and to manage the inventory costing process, the Group had entered into forward exchange contracts to purchase US$2,800,000. These contracts hedged highly probable forecasted purchases and they were timed to mature when payments are scheduled to be made. Cash flow hedges These hedges are considered cash flow hedges to the point where a purchase invoice is received (and a payable financial liability generated). From this point the hedge protects the financial liability from exchange rate movements and is, therefore, a fair value hedge. The cash flows of these hedges were expected to occur between 1 – 6 months from balance date and the profit and loss will be affected over 12 months as the inventory is either used in production or sold. As at balance date, the details of outstanding contracts in respect of inventory purchases were: 30 June 2015 $’000 30 June 2014 $’000 30 June 2015 Avg Exchange Rate 30 June 2014 Avg Exchange Rate Buy US$/Sell Australian $ – 3,068 – 0.9126 Fair value hedges As referred to above, once a purchase invoice has been received for a forecast purchase for which a cash flow hedge was taken out, the hedge now protects the financial liability from exchange rate movements and is, therefore, reclassified as a fair value hedge. As at balance date, the details of outstanding contracts in respect of fair value hedges were: 30 June 2015 $’000 30 June 2014 $’000 30 June 2015 Avg Exchange Rate 30 June 2014 Avg Exchange Rate Buy US$/Sell Australian $ – – – – Forecast export sales During the year ended 30 June 2014, in order to protect against exchange rate movements on cash flows from foreign currency denominated export sales orders, the Group entered into forward exchange contracts to purchase US$305,000. These contracts hedged highly probable forecasted export sales cash receipts and are timed to mature when receipts fall due. Cash flow hedges These hedges were considered cash flow hedges to the point where a sales invoice is raised (and a receivable financial asset generated). From this point, the hedge protects the financial asset from exchange rate movements and is, therefore, a fair value hedge. The cash flows of these hedges were expected to occur between 1 – 3 months from balance date and the profit and loss affected over the same period as sales orders are invoiced and funds from customers received. As at balance date, the details of outstanding contracts in respect of uninvoiced export sales orders were: 30 June 2015 $’000 30 June 2014 $’000 30 June 2015 Avg Exchange Rate 30 June 2014 Avg Exchange Rate Sell US$/Buy Australian $ – – – – Fair value hedges As referred to above, once a sales invoice has been raised for a forecast sale for which a cash flow hedge was taken out, the hedge now protects the financial asset from exchange rate movements and is, therefore, reclassified as a fair value hedge. As at balance date, the details of outstanding contracts in respect of fair value hedges were: 30 June 2015 $’000 30 June 2014 $’000 30 June 2015 Avg Exchange Rate 30 June 2014 Avg Exchange Rate Sell US$/Buy Australian $ – 329 – 0.9273 56 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015Interest rate risk Information regarding interest rate risk exposure is set out in note 3. Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains. Management only undertakes such contracts with major Australian banks and financial institutions. NOT E 21. C ON T RIBU T ED EQUIT Y A ND RE SE RV E S (a) Ordinary shares, issued and fully paid Consolidated 30 June 2015 $’000 30 June 2014 $’000 11,478 11,478 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Shares have no par value. (b) Movements in shares on issue Balance at 1 July 2015 2014 Number of Shares $’000 Number of Shares $’000 43,987,234 11,478 43,291,509 10,874 Shares issued under Dividend Reinvestment Plan – – 695,725 604 Balance at 30 June 43,987,234 11,478 43,987,234 11,478 (c) Capital management When managing capital, the Groups objective is to maintain optimal returns to shareholders and benefits for other stakeholders. The Group also aims to maintain a capital structure that delivers the lowest cost of capital available to its operations. The Group adjusts the capital structure to take advantage of favourable costs of capital or high returns on assets. As the economic conditions change, the Group may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies or processes for managing capital during the years ended 30 June 2015 and 2014. The Group monitors capital through the gearing ratio (net debt/ total equity plus net debt) and currently targets a gearing ratio of between 10% and 35% while focus remains on reducing the Groups net debt position. The Group includes within net debt interest bearing loans and borrowings less cash and cash equivalents. The gearing ratios based on continuing operations at 30 June 2015 and 2014 were as follows: Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Gearing ratio The Group is not subject to any externally imposed capital requirements. Consolidated 30 June 2015 $’000 30 June 2014 $’000 8,057 10,949 (4,446) 3,611 25,754 29,365 12% (814) 10,135 21,681 31,816 32% 57 NOT E 21. C ON T RIBU T ED EQUIT Y A ND RE SE RV E S (CON T IN U ED) (d) Non-controlling interests Balance at 1 July Gain/(Loss) on translation of overseas controlled entities Share of net profit for the year Dividends paid Balance at 30 June (e) Retained earnings Balance at 1 July Net profit/(loss) for the year Depreciation transfer on revaluation of buildings Dividends paid Balance at 30 June Consolidated 30 June 2015 $’000 30 June 2014 $’000 2,755 3,222 317 329 (323) 3,078 (419) 256 (304) 2,755 Consolidated 30 June 2015 $’000 30 June 2014 $’000 6,448 2,490 29 – 8,967 9,801 (1,650) 29 (1,732) 6,448 Consolidated Employee equity benefits reserve $’000 Foreign currency translation reserve $’000 Cash flow hedge reserve $’000 Asset revaluation reserve $’000 Equity settlement reserve $’000 Total $’000 (f) Reserves At 30 June 2013 Currency translation differences Share-based payments Equity settlement Net gain on cash flow hedge Depreciation transfer for revaluation of buildings 374 – 155 (133) – – (1,020) (834) – – – – 82 2,742 (202) 1,976 – – – (149) – – – – – (29) – – 14 – – At 30 June 2014 396 (1,854) (67) 2,713 (188) (834) 155 (119) (149) (29) 1,000 1,281 (8) (80) 67 (29) – – – – (29) – – 38 – – 2,684 (150) 2,231 Currency translation differences Share-based payments Equity settlement Net gain on cash flow hedge Depreciation transfer on revaluation of buildings – (8) (118) – – 1,281 – – – – At 30 June 2015 270 (573) – – – 67 – – 58 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 Nature and purpose of reserves Employee equity benefits reserve This reserve is used to record the value of share-based payments provided to employees and directors as part of their remuneration. Refer to note 15 for further details of these plans. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. Asset Revaluation Reserve The asset revaluation reserve is used to record increases and decreases in the fair value of land and buildings (net of tax) to the extent that they offset one another. The reserve can only be used to pay dividends in limited circumstances. Equity Settlement Reserve The equity settlement reserve records the net difference between payment for shares upon the exercise of performance rights under the LTIP and the amount expensed in the profit and loss and recorded in the employee equity benefits reserve over the three year vesting period. NOT E 2 2 . C OMMIT MEN T S A ND C ON TINGENCIE S (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date, but not provided for payable: Not later than one year These capital expenditure commitments relate to an overhead crane and upgraded trailer. (b) Operating lease expenditure commitments Not later than one year Later than one year, but not later than five years Later than five years Consolidated 30 June 2015 $’000 30 June 2014 $’000 46 46 140 57 – 197 49 49 253 107 – 360 These operating lease commitments relate to motor vehicle leases and rent. (c) Contingent liabilities The directors draw the following contingent liabilities to the attention of users of the financial statements: Note 23 regarding the class order between certain subsidiaries and the Company. 59 NOT E 2 3. RE L AT ED PA R T IE S A Director of the Company, Mr P J Cave, has an interest in and is a Director of Anchorage Capital Partners Pty Ltd. The terms and conditions of any transactions with Directors and their Director related entities are no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non Director related entities on arm’s length basis. Investments Country of Incorporation Name of parent Bisalloy Steel Group Limited Australia Controlled entities Bisalloy Steels Pty Limited PT Bima Bisalloy Bisalloy Holdings (Thailand) Co Ltd Bisalloy (Thailand) Co Limited Australia Indonesia Thailand Thailand Percentage of equity interest held by the Consolidated entity 30 June 2015 % Percentage of equity interest held by the Consolidated entity 30 June 2014 % 100.00 100.00 60.00 85.00 85.00 60.00 85.00 85.00 Bisalloy North America LLC United States of America 100.00 100.00 Joint venture Bisalloy Jigang (Shandong) Steel Plate Co., Ltd People’s Republic of China 33.33 33.33 Entities subject to class order relief Pursuant to Class Order 98/1418, relief has been granted to Bisalloy Steels Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Bisalloy Steel Group Limited and Bisalloy Steels Pty Limited (the “closed” Group) entered into a Deed of Cross Guarantee on the 18th April, 2002. The effect of the deed is that Bisalloy Steel Group Limited has guaranteed to pay any deficiency in the event of winding up of the controlled entity. The controlled entity has also given a similar guarantee in the event that Bisalloy Steel Group Limited is wound up. 60 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015The consolidated statement of profit or loss and statement of financial position of the entities which are members of the “Closed Group” are as follows: i. Consolidated Income Statement Profit/(Loss) from continuing operations before income tax Income tax (expense)/benefit Profit/(Loss) after income tax Accumulated (losses)/profits at the beginning of the year Dividends provided for or paid Accumulated profits/(losses) at the end of the year ii. Consolidated Balance Sheet Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other financial assets Total current assets Non-current assets Investments Property, plant and equipment Other financial assets Total non-current assets Total assets Current liabilities Trade and other payables Other liabilities Provisions Income tax payable Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing liabilities Other liabilities Provisions Deferred tax liability Total non-current liabilities Total liabilities NET ASSETS Closed Group 30 June 2015 $’000 Closed Group 30 June 2014 $’000 3,935 (1,060) 2,875 (503) – 2,372 3,597 8,822 10,544 – 735 (1,417) 373 (1,044) 2,273 (1,732) (503) 21 6,673 10,482 5 754 23,698 17,935 1,689 14,631 99 16,419 40,117 1,689 15,075 142 16,906 34,841 14,487 10,068 – – 1,504 1,521 (10) – – 96 15,981 11,685 7,666 10,306 - 323 1,187 9,176 25,157 14,960 - 320 426 11,052 22,737 12,104 61 NOT E 2 3. RE L AT ED PA R T IE S (C ON TIN U ED) Shareholders’ equity Contributed equity Reserves Accumulated profits/(losses) TOTAL SHAREHOLDERS’ EQUITY Closed Group 30 June 2015 $’000 Closed Group 30 June 2014 $’000 11,478 11,478 1,110 2,372 1,129 (503) 14,960 12,104 The following table provides the total amount of transactions that have been entered into between the Group and related parties for the relevant financial year: Related Party Bisalloy Jigang Steel Plate (Shandong) Co.,Ltd Interest and management fees to related parties $’000 2015 2014 – – Amounts owed by related parties $’000 Amounts owed to related parties $’000 20 144 – – Other $’000 – – Terms and conditions of transactions with related parties Sales to and purchase from related parties are made in arm’s length transactions both at normal market price and on normal commercial terms. Sale and purchases with related parties during 2015 were nil (2014: nil). Outstanding balances at year-end are unsecured. 2 4 . E V E N T S A F T E R T HE BA L A NCE DAT E Mr Robert Terpening the Group’s Managing Director advised the Board on 25 August 2015 of his intention to retire effective 5 January 2016. 2 5. AUDIT ORS’ REM U NE R ATION The auditor of Bisalloy Steel Group Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young (Australia) for: – an audit or review of the financial report of the entity and any other entity in the consolidated Group – tax compliance and advice – assurance related – other Consolidated Year ended 30 June 2015 $ Year ended 30 June 2014 $ 146,800 90,000 – – – – – – Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: – an audit or review of the financial report of any other entity in the consolidated Group 47,793 42,417 – tax compliance and advice 62 – – 194,593 132,417 Bisalloy Steel Group Limited2015 annual reportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuedFOR THE YEAR ENDED 30 JUNE 2015 NOT E 2 6. PA RE N T E N T IT Y INF ORM AT ION Information relating to Bisalloy Steel Group Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Reserves Total shareholder’s equity Profit of the parent entity Total comprehensive income of the parent entity 30 June 2015 $’000 30 June 2014 $’000 – – 3,971 3,369 211 211 53 53 11,478 11,478 (7,332) (8,092) 36 36 4,182 3,422 828 828 624 624 Guarantees have been entered into by the Parent entity on behalf of Bisalloy Steels Pty Limited and Bisalloy (Thailand) Co Limited. There are no contingent liabilities or contractual commitments as at the reporting date. 63 DI R E C T O R S’ DE C L A R AT I O N In accordance with a resolution of the directors of Bisalloy Steel Group Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; the financial statements and notes also comply with International Financial Reporting Standards (IFRS) as disclosed in note 2. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2015. (b) (c) (d) On behalf of the Board Robert Terpening Managing Director Sydney 25 August 2015 d e t i i m L p u o r G l e e t S y o l l a s B i t r o p e r l a u n n a 5 1 0 2 64 Ernst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor's report to the members of Bisalloy Steel Group Limited Report on the financial report We have audited the accompanying financial report of Bisalloy Steel Group Limited, which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 Opinion In our opinion: a. the financial report of Bisalloy Steel Group Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity's financial position as at 30 June 2015 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Bisalloy Steel Group Limited for the year ended 30 June 2015, complies with section 300A of the Corporations Act 2001. Ernst & Young Glenn Maris Partner Sydney 25 August 2015 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 66 A SX A DDI T I O N A L I N F O R M AT I O N Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 31 July 2015. a. Distribution of equity securities The number of shareholders, by size of holding in each class of share are: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Shares Number of Holders Number of Shares 571 584 134 178 41 350,519 1,351,804 979,023 5,641,477 35,664,411 1,508 43,987,234 The number of shareholders holding less than a marketable parcel of shares based on a share price of $0.495 at the date of this report are 573 352,523 There are 250,000 performance rights issued to a single holder. Performance rights do not carry a right to vote. 67 67 ASX ADDITIONAL INFORMATIONListed Ordinary Shares Number of Shares % of Ordinary Shares 7,784,630 7,016,575 5,881,594 2,174,692 1,349,330 1,344,364 1,047,241 917,566 913,350 605,635 556,987 525,969 422,325 400,000 390,540 371,590 300,000 299,000 267,511 250,000 17.70 15.95 13.37 4.94 3.07 3.06 2.38 2.09 2.08 1.38 1.27 1.20 0.96 0.91 0.89 0.84 0.68 0.68 0.61 0.57 Fully Paid Number of shares % 8,156,220 7,573,562 5,881,594 21,611,376 18.54 17.22 13.37 49.13 b. Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1. BALRON NOMINEES PTY LTD 2. ANCHORAGE (BSG) PTY LTD 3. RBC INVESTOR SERVICES AUSTRALIA NOMINEES 4. PROSPECT CUSTODIAN LIMITED 5. EVELIN INVESTMENTS PTY LTD 6. SILVERSTREET PTY LTD 7. J.P MORGAN NOMINEES AUSTRALIA LTD 8. METAL ONE CORPORATION 9. REIS PENSION & SUPER FUND 10. CLYDE BANK HOLDINGS (AUST) PTY LTD 11. INTERB INVESTMENTS PTY LTD 12. TERPENING PTY LTD (TERPENING SUPER FUND) 13. CROANNA PTY LTD 14. BALPIE PTY LIMITED) 15. KILCONQUHAR SUPERANNUATION FUND PTY LTD 16. BALKIN PTY LTD (BALKIN SUPER FUND) 17. THE GENUINE SNAKE OIL COMPANY PTY LTD 18. BERNE NO 132 NOMINEES PTY LIMITED 19. ABEILLE INVESTMENTS PTY LIMITED 20. BOTSIS HOLDINGS PTY LTD c. Substantial Shareholders: The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: David Balkin, Mr Peter Smaller, Mirond Holdings Pty Ltd, Smaller Holdings Pty Ltd, Balron Nominees Pty Ltd Anchorage (BSG) Pty Limited and Mr Phillip Cave RBC Investor Services Australia Nominees Pty Limited d. Voting Rights: All ordinary shares carry one vote per share without restriction. 68 Bisalloy Steel Group Limited2015 annual reportASX ADDITIONAL INFORMATIONThis page has been left blank intentionally. 69 C O R P O R AT E DI R E C T O RY R E G I S T E R E D O F F I C E 18 Resolution Drive Unanderra NSW 2526 Telephone: +61 (0)2 4272 0444 Facsimile: +61 (0)2 4272 0445 www.bisalloy.com.au companysecretary@bisalloy.com.au B A N K E R S GE Commercial (Australasia) Level 16 99 Walker Street North Sydney NSW 2060 Telephone: +61 (0)2 9324 7276 Facsimile: +61 (0)3 8249 3783 A U D I T O R S Ernst & Young 680 George Street Sydney NSW 2000 Telephone: +61 (0)2 9248 5555 Facsimile: +61 (0)2 9248 5575 S H A R E R E G I S T RY Computershare Yarra Falls 452 Johnston Street Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 Telephone (within Australia): 1300 738 768 Telephone: +61 (0)3 9415 4377 Facsimile: +61 (0)3 9473 2500 Web: www.computershare.com L E G A L A D V I S O R S Minter Ellison Level 40 Governor Macquarie Tower 1 Farrer Place Sydney NSW 2000 Telephone: +61 (0)2 9921 8888 Facsimile: +61 (0)2 9921 8123 d e t i i m L p u o r G l e e t S y o l l a s B i t r o p e r l a u n n a 5 1 0 2 70 A N N U A L G E N E R A L M E E T I N G The Group will hold its 2015 Annual General Meeting in the Press Room at the Radisson Plaza Hotel located at 27 O’Connell Street, Sydney NSW at 11.00am on Monday, 23 November 2015. Copies of the annual report or further information can be obtained by e-mailing companysecretary@bisalloy.com.au or writing to the Company Secretary at the registered office. An electronic copy of this report is available on the Company’s website. Designed and produced by FCR www.fcr.com.au 71 71 

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